What Does Financial Leverage Mean and How Does It Impact a Company?
Financial leverage meaning refers to the use of borrowed funds to increase a company’s potential return on investment. Businesses use leverage to finance assets, expand operations, and boost profits without raising additional equity. However, while leverage can magnify gains, it can also increase financial risk if returns fall short of borrowing costs. Understanding the meaning of financial leverage is essential for investors and managers to make smart financial decisions. In simple terms, financial leverage helps measure how effectively debt is used to enhance shareholder value and business growth.