Leverage Ratios

Leverage Ratios

LEVERAGE RATIOS incorporate any two of the following: Assets, Equity, Liabilities.

If you invest $60K of your money in a business, and borrow an additional $30K from the bank, you have assets of $90K. You can express your leverage in several ways:

Debt to Equity : 30/60 = .5
Debt Ratio (i.e. Debt to Assets): 30/90 = .33

Both these numbers are expressing the same situation, and both can be called leverage. One person might say “We’re leveraged 50%”, while another could say “We’re leveraged 33%.”

See also Leverage.

Be sure to ask, What do you mean by that?.

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