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Leverage
Financial leverage is the use of borrowed funds alongside equity to finance an asset or business.
Financial leverage is the use of borrowed funds alongside equity to finance an asset or business. It describes the role of debt in the funding mix; debt payments can place pressure on a business when revenue is low.
Property operations example: identify the debt and equity balances and their reporting dates when describing a property's financing. A leverage measure describes that funding relationship rather than guaranteeing an investment result.
Source: Business Development Bank of Canada, Leverage glossary.
Frequently Asked Questions
Does using leverage guarantee a higher return?
No. Borrowing adds financial obligations. Actual results depend on performance and financing costs, so leverage alone does not establish a return.
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