Leverage is how much you extend your assets by borrowing against your investment.
Leverage Ratios are a meausre of leverage, they incorporate Liabilities and either Assets or Equity.
Example:If you invest $60K of your money in a business, and borrow an additional $30K from the bank, you have assets of $90K. You can express your leverage in several ways: Debt to Equity : 30/60 = .5 Debt Ratio (i.e. Debt to Assets): 30/90 = .33 Both these numbers are expressing the same situation, and both can be called leverage. The first person might say, “We’re leveraged 50%”; the second person could say, “We’re leveraged 33%." |
If someone mentions 'leverage' be sure to ask, “What do you mean by that?
term list.