A financial metric that measures the amount of debt a company uses relative to its equity or assets to gauge financial risk and borrowing capacity. Higher ratios indicate greater financial leverage and potential risk.
From Old French 'levier' (to raise) combined with Latin 'ratio' (calculation, reasoning). The financial meaning evolved from the mechanical concept of using a lever to amplify force, first applied to finance in the early 20th century.
Just like a physical lever can help you lift heavy objects but might break under too much weight, financial leverage amplifies both gains and losses - a 2:1 leverage ratio means every 1% move in your investment becomes a 2% move in your returns, for better or worse!
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