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The more debt used, the greater the leverage a company employs on behalf of its owners.
What is financial leverage?
Financial leverage exists as the usage of borrowed money (debt) to finance the purchase of assets with the anticipation that the income or capital gain from the new asset will surpass the cost of borrowing.
What is financial leverage example?
An example of financial leverage use contains utilizing debt to buy a house, borrowing money from the bank to begin a store, and bonds issued by companies.
Debt exists as an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another group, the creditor. Debt stands for deferred payment, or sequence of payments, which distinguishes it from an immediate purchase.
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