Leverage Ratio

Definition

A measure of how much debt a company uses relative to its equity, showing financial risk. High leverage means lots of debt; low leverage means the company paid with its own money and didn't maximize returns.

Example Usage

The company's leverage ratio of 3:1 meant they had $3 in debt for every $1 in equity—aggressive but not reckless.

Origin

Concept developed in financial analysis to assess solvency and risk

Fun Fact

Financial companies operate with extremely high leverage ratios (10:1+) because their business model requires it

Source: Financial Analysis Standards

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distressed

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Intermediate

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