Leverage in financial management
Understand the Problem
The question is asking about the concept of leverage in the context of financial management, which involves understanding how leverage can amplify both potential returns and risks when making financial decisions.
Answer
Leverage is using borrowed funds to increase potential investment returns.
Leverage in financial management refers to the use of borrowed funds to increase potential returns from an investment. It involves using debt to amplify financial capacity, allowing for greater investment or operational actions.
Answer for screen readers
Leverage in financial management refers to the use of borrowed funds to increase potential returns from an investment. It involves using debt to amplify financial capacity, allowing for greater investment or operational actions.
More Information
Leverage can significantly boost both potential gains and potential losses, making it a double-edged sword in finance.
Tips
A common mistake is underestimating the risk involved with leverage. If the investment does not yield expected returns, the losses can be amplified.
Sources
- Leverage (finance) - Wikipedia - en.wikipedia.org
- Leverage - Guide, Examples, Formula for Financial & Operating - corporatefinanceinstitute.com
- Financial Leverage: What It Is And Why It Matters | Bankrate - bankrate.com
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