Financial Leverage
/ˈfaɪnænʃəl ˈlɛvərɪdʒ/
Definitions
- (n.) The use of borrowed funds or debt to increase the potential return on investment while assuming greater risk.
The company's financial leverage increased its profits but also exposed it to higher risk of bankruptcy.
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Commentary
Financial leverage is central in corporate finance and insolvency law, reflecting a balance between risk and return; clear drafting should distinguish leverage ratios from simple borrowing to avoid ambiguity.
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