Financial leverage
Financial leverage refers to the use of borrowed money to increase the potential return on investment. By taking on debt, a business or individual can invest more than they could with just their own funds, aiming for greater profits. However, while leveraging can amplify gains, it also increases risk; if investments don't perform well, the losses can be greater too. Essentially, financial leverage is a strategy that can boost returns but requires careful management to avoid overwhelming debt.
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Financial leverage refers to the use of borrowed funds to increase the potential return on investment. By borrowing money, a company can invest more in its operations or assets than it could using only its own funds. This can amplify profits when business is good, as the returns on a larger investment can exceed the cost of the debt. However, financial leverage also increases risk; if the investment doesn’t perform well, losses can be magnified. Essentially, it’s using other people's money to try to generate more profit, but it requires careful management to avoid significant losses.