Quick Definition

A leverage ratio is a financial metric used to assess a company's ability to meet its financial obligations with its available assets. It indicates the extent to which a business is using borrowed money.

Formula

Examples

• 1A company with total assets of $10 million and total debt of $4 million has a leverage ratio of 0.4, indicating moderate use of debt.
• 2A bank required to maintain a minimum leverage ratio of 5% to comply with regulatory standards.
• 3An investment firm increasing its leverage ratio by taking on more debt to amplify potential returns on investments.
• 4A real estate developer using a high leverage ratio to finance the construction of a new building, relying heavily on borrowed funds.

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