Leverage (Iinance)

From Wikipedia, the Iree encyclopedia

n finance, 0;07,0 (sometimes referred to as 0,73 in the United Kingdom) is a general term for any
technique to multiply gains and losses.
[1]
Common ways to attain leverage are borrowing money,
buying fixed assets and using derivatives.
[2]
mportant examples are:
A public corporation may leverage its equity by borrowing money. The more it borrows, the less
equity capital it needs, so any profits or losses are shared among a smaller base and are
proportionately larger as a result.
[3]

A business entity can leverage its revenue by buying fixed assets. This will increase the proportion
of fixed, as opposed to variable, costs, meaning that a change in revenue will result in a larger
change in operating income.
[4][5]

Hedge funds often leverage their assets by using derivatives. A fund might get any gains or losses on
$20 million worth of crude oil by posting $1 million of cash as margin.
[6]