This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
Leverage is how much you extend your assets by borrowing against your investment.
Leverage Ratios are a meausre of leverage, they incorporate Liabilities and either Assets or Equity.
Example: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. The first person might say, “We’re leveraged 50%”; the second person could say, “We’re leveraged 33%." |
If someone mentions 'leverage' be sure to ask, “What do you mean by that?
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Calculator for Debt to Equity Ratio
Calculator for Debt Ratio
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The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.