Leverage Ratio

A leverage ratio is a financial metric that compares the amount of debt a company or individual has relative to their equity or assets.It is used to assess the financial health of a company, indicating how much of the company's capital structure is financed by debt. Common leverage ratios include the debt-to-equity ratio, debt-to-assets ratio, and the equity multiplier. A high leverage ratio indicates a higher degree of debt financing, which can increase financial risk.

Example

A company with a debt-to-equity ratio of 2:1 has twice as much debt as equity, indicating a high level of leverage, which could increase the company's risk profile.