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Leverage:

The amount of debt or borrowed money an organization is using to fund its operations. Leverage is not good or bad. If it is used wisely, it can have tax advantages or other beneficial impacts. Organizations that are highly leveraged (that is, carrying too much debt versus their assets) may be at great risk if any adverse business conditions arise that would cause them to be unable to pay their expenses. They may not be able to get any additional loans in an emergency. Such organizations may be forced into bankruptcy or driven out of business.



Leverage Ratio:

Total liabilities divided by owner’s equity.




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