![]() Leverage is used by investors to significantly increase the returns on their investments. When a company, property, or investment is referred to as "highly leveraged," it means that it has more debt than equity.īoth investors and businesses use the concept of leverage. Simultaneously, leverage multiplies the potential downside risk if the investment does not pan out. As a result, the potential returns from a project are multiplied. Leverage is the use of borrowed capital (debt) to fund an investment or project. While leverage may increase an investment's returns, there is a drawback: if the investment does not work out, it may increase the potential risk and loss of the investment. Leverage can also refer to the amount of debt a company uses to fund an asset, which is referred to as financial leverage. It can be used in business, professional trading, and even to finance a home. Leverage is an investment strategy that involves borrowing money to increase the potential return on investment. We have covered leverage in-depth in this article below. Leveraging is when you use borrowed money - such as loans, securities, capital, or other assets - for an investment in order to potentially increase the return on that investment. ![]() To finance those purchases, businesses use leverage rather than equity. Leverage is frequently used in business to refer to borrowing funds to finance the purchase of inventory, equipment, or other assets. Debt can be used to build credit, start building equity through the purchase of a new home, or even leverage it to make a profit-generating investment.ĭebt can also be referred to as leverage.
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