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| 1. <br />
| | == Summary == |
| Debt divided by Debt plus Equity = D / (D + E).<br />
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| <br />
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| <b>Example</b><br />
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| If the amounts of debt and equity were equal then leverage under this definition would be calculated as:<br />
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| 1 / (1 + 1) = 50%.<br />
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| <br />
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| 2. <br />
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| The term 'leverage' is also used in a broader sense to refer to the amount of debt in a firm's financial structure.<br />
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| Used in this broader sense, 'leverage' means very much the same as 'gearing'. <br />
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| However, leverage and gearing are normally quantified by different calculations.<br />
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| <br />
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| 3. <br />
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| To increase the level of gearing in an operational or financial structure. The intention of leveraging is to improve expected net results. <br />
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| A consequence of leveraging is normally to increase financial risk.<br />
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| Many financial disasters have been a consequence of leveraging up excessively in this way in earlier periods.
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| <br />
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| == See also == | |
| * [[Debt]]
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| * [[Deleverage]]
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| * [[Gearing]]
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| * [[Leverage ratio]]
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| ===Other links===
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| [http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, The Treasurer, July 2012]
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| [[Category:Corporate_finance]]
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Latest revision as of 09:29, 27 July 2023
Summary
Importing files from local file repository
