Description: Financial leverage refers to the use of borrowed funds to increase the potential return on investment. This concept is fundamental in the field of finance, as it allows companies and investors to maximize their profits by utilizing external capital. By resorting to loans or debt issuance, organizations can invest in larger projects or opportunities that they otherwise could not finance solely with their own resources. However, leverage also carries risks, as an increase in debt can lead to greater financial pressure, especially if the generated income is insufficient to cover debt costs. In a broader financial context, financial leverage becomes a strategic tool for managing and optimizing resources. Organizations can use leverage to invest in solutions that, while requiring an initial investment, can result in significant long-term savings. Thus, financial leverage is not just about increasing available capital, but also about effectively managing resources to maximize value and operational efficiency.
