FINANCIAL LEVERAGE Meaning and
Definition
-
Financial leverage is a concept in finance that refers to the use of borrowed funds or debt to amplify the potential return on investment. It involves using borrowed money to finance an investment or business operation with the aim of increasing the potential profitability of the investment.
In simple terms, financial leverage allows an individual or a company to control a larger portion of an asset or investment without using their own money. By utilizing borrowed funds, individuals or companies can make larger investments than they would otherwise be able to afford, thereby potentially increasing their return on investment if the investment turns out to be profitable.
The concept of financial leverage works on the principle that the cost of borrowing is lower than the potential returns from investment. This is because the interest rate paid on borrowed funds is often lower than the potential returns from the investment, creating an opportunity for increased profitability.
However, it is important to note that financial leverage is a double-edged sword. While it has the potential to amplify profits, it also amplifies losses. If the investment does not generate sufficient returns to cover the cost of borrowing, the leverage can magnify the losses, putting the individual or company at a greater risk of financial distress.
Overall, financial leverage is a strategy used to potentially increase investment returns but carries a higher level of risk due to the use of borrowed funds.
Common Misspellings for FINANCIAL LEVERAGE
- dinancial leverage
- cinancial leverage
- vinancial leverage
- ginancial leverage
- tinancial leverage
- rinancial leverage
- funancial leverage
- fjnancial leverage
- fknancial leverage
- fonancial leverage
- f9nancial leverage
- f8nancial leverage
- fibancial leverage
- fimancial leverage
- fijancial leverage
- fihancial leverage
- finzncial leverage
- finsncial leverage
- finwncial leverage
- finqncial leverage
Etymology of FINANCIAL LEVERAGE
The word "financial leverage" originates from the combination of two terms: "financial" and "leverage".
1. Financial: The term "financial" is derived from the Old French word "financier", which means "pertaining to money" or "relating to finance". It entered the English language in the mid-18th century and has its roots in the Latin word "finis", meaning "end" or "boundary". In the context of finance, the term refers to matters related to money, revenue, or capital management.
2. Leverage: The word "leverage" is derived from the Old French word "lever", which means "to raise", "lift", or "support". This word entered the English language in the late 16th century and has its origins in the Latin word "levare", meaning "to lift".
Infographic
Add the infographic to your website:
