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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 a leverage investment strategy?

Leverage is also an investment strategy that uses borrowed money—specifically, the use of various financial instruments or borrowed capital —to increase the potential return of an investment. Leverage refers to using debt (borrowed funds) to amplify returns from an investment or project. Companies can use leverage to invest in growth strategies.

Why do investors use leverage?

Some investors use leverage to multiply their buying power in the market. There is a range of financial leverage ratios used to gauge a company's financial strength, with the most common being debt-to-assets and debt-to-equity. Leverage is using debt or borrowed capital to undertake an investment or project.

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