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Leverage

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Leverageis a business term that refers to borrowing. If a business is "leveraged," it means that the business has borrowed money to finance the purchase of assets. The other way to purchase assets is through use of owner funds, or equity.

One way to determine leverage is to calculate the Debt-to-Equity ratio, showing how much of the assets of the business are financed by debt and how much by equity(ownership).

Leverage is not necessarily a bad thing. Leverage is useful to fund company growth and development through the purchase of assets. But if the company has too much borrowing, it may not be able to pay back all of its debts.

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