Description: The leverage ratio is a financial indicator that measures the degree to which a company is using borrowed money to finance its operations and growth. This ratio is calculated by dividing the company’s total debt by its equity, allowing investors and analysts to assess the proportion of debt relative to the capital invested by shareholders. A high leverage ratio may indicate that a company is taking on significant risk by relying heavily on external financing, which could affect its financial stability in times of crisis. Conversely, a low ratio suggests that the company is using less debt and may be viewed as less risky. However, moderate leverage can be beneficial as it allows companies to seize growth opportunities without diluting shareholder ownership. In summary, the leverage ratio is a crucial tool for understanding a company’s capital structure and its ability to manage its financial obligations.
