What is the Definition of Financial Leverage?

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What is the Definition of Financial Leverage?

What is the Definition of Financial Leverage?

Financial leverage is the degree to which a company or individual has borrowed money in order to continue operations. If a company is highly leveraged, it is in danger of bankruptcy if it cannot repay its debt. Leverage can be a positive thing if future income flows are sufficient to cover payments, and interest rates are low.

It can be disastrous if a company, or an individual, does not have adequate income to cover debts taken. In trading, leverage can be wonderful if it earns large gains, but disastrous if you lose. Never take a highly leveraged position if you don't have the funds to cover if you lose!



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