leverage investment & finance definition
- The
amount of debt a company has. A highly-leveraged company has a relatively large
amount of debt when compared to the level of assets it owns. Although becoming
highly leveraged can create significant profits if things go according to plan,
it can severely hamper a company that is caught in a slowing market or
experiences unanticipated competition.
- To purchase
stocks or other investments by using borrowed funds (on margin). An investor
who borrows money from his or her broker to purchase stocks uses leverage in
order to increase his or her potential gain. However, if the investment
declines in value, then the amount of money the investor loses likely increases
well.
See leverage in Wall Street Words
The use of fixed costs in order to increase the rate of return from an investment. One example of leverage is buying securities on margin. While leverage can operate to increase rates of return, it also increases the amount of risk inherent in an investment. See also
financial leverage,
operating leverage.
Learn more about leverage