Leverage: Difference between revisions
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imported>Doug Williamson m (Spacing 22/8/13) |
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1. | 1. | ||
Debt divided by Debt plus Equity = D/[D+E]. | Debt divided by Debt plus Equity = D/[D+E]. | ||
For example if the amounts of debt and equity were equal then leverage under this definition would be calculated as 1/(1+1) = 50%. | For example if the amounts of debt and equity were equal then leverage under this definition would be calculated as 1/(1+1) = 50%. | ||
2. | 2. | ||
Gearing. Leverage is based on the same inputs, but the calculation would be 1/1 = 100%. | Gearing. Leverage is based on the same inputs, but the calculation would be 1/1 = 100%. | ||
3. | 3. | ||
To increase the level of gearing in an operational or financial structure. The intention of leveraging is to improve expected net results. The consequence of leveraging is normally to increase financial risk. | |||
To increase the level of gearing in an operational or financial structure. | |||
The intention of leveraging is to improve expected net results. | |||
The consequence of leveraging is normally to increase financial risk. | |||
Many financial disasters have been a consequence of leveraging up in this way in earlier periods. | Many financial disasters have been a consequence of leveraging up in this way in earlier periods. | ||
== See also == | == See also == | ||
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* [[Deleverage]] | * [[Deleverage]] | ||
* [[Gearing]] | * [[Gearing]] | ||
Revision as of 11:31, 22 August 2013
1.
Debt divided by Debt plus Equity = D/[D+E].
For example if the amounts of debt and equity were equal then leverage under this definition would be calculated as 1/(1+1) = 50%.
2.
Gearing. Leverage is based on the same inputs, but the calculation would be 1/1 = 100%.
3.
To increase the level of gearing in an operational or financial structure.
The intention of leveraging is to improve expected net results.
The consequence of leveraging is normally to increase financial risk.
Many financial disasters have been a consequence of leveraging up in this way in earlier periods.
