Learn how financial leverage is the use of borrowed money to finance the purchase of assets and increase returns. Find out how to measure financial leverage using debt-to-equity ratio and other ratios, and what are the risks and benefits of using leverage. Financial leverage is the use of borrowed money to purchase assets, with the expectation that the income from the asset will be greater than the cost of borrowing. Financial leverage is the use of debt to buy assets. It is employed to increase the return on equity, but an excessive amount increases the risk of failure. Financial leverage is a powerful financing method of using borrowed funds to increase returns on assets or for business operations, meaning that borrowers intend to return a project’s cost of capital or interest expense with money made on a larger investment's returns.
