Leverage lets you control a larger position than your own cash alone would allow. A company that funds expansion with debt is leveraged; so is a trader who buys shares on margin. When returns exceed the cost of borrowing, leverage boosts equity gains. When returns fall short, losses hit equity harder and can wipe out capital. Interest costs and refinancing risk are part of the true price of leverage.
Key takeaways
- Leverage multiplies outcomes in both directions.
- Debt service must be realistic under weak conditions, not only boom years.
- Corporate leverage shows up in balance sheet ratios and interest cover.
- Personal leverage through margin loans can force sales at the worst time.