What is leverage in finance?

In finance, leverage is a strategy that companies use to increase assets, cash flows, and returns, though it can also magnify losses. There are two main types of leverage: financial and operating. To increase financial leverage, a firm may borrow capital through issuing fixed-income securities or by borrowing money directly from a lender.

What is'leverage'?

What is 'Leverage'. Leverage is an investment strategy of using borrowed money — specifically, the use of various financial instruments or borrowed capital — to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets. When one refers to a company,...

What does 'highly leveraged' mean?

If a company, a property or an investment is described as ‘highly leveraged’, it means that item or entity has more debt than equity. Lots of talk about ‘what is leverage’ comes in the context of discussions about the 2007-09 financial crisis, where leverage was a big issue.

What are the key takeaways of leverage?

Key Takeaways. Leverage refers to the use of debt (borrowed funds) to amplify returns from an investment or project. Investors use leverage to multiply their buying power in the market.