Financial Leverage
Content
Definition
Financial Leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain will exceed the cost of borrowing.
Usage and Context
Companies often use financial leverage to expand their operations or invest in new projects. This strategy can increase profits if the returns are higher than the interest paid on the debt.
Frequently asked questions
- Is financial leverage the use of borrowed funds for investment purposes? True. Financial leverage involves using borrowed money for investments, aiming to earn more than the cost of the debt.
- What is the difference between financial independent and dependent? Financial independence means having enough wealth to live without working. Financial dependence is needing external financial support, like loans, to manage.
- What is borrowed money used to make an investment? Borrowed money used for investment is called financial leverage. It`s the act of borrowing to increase the potential return of an investment.
Benefits
Financial leverage can make more money. It lets you invest more with less money.
Conclusion
Financial leverage can be risky and rewarding. It can make more profit but can also lead to losses.
