Analyzing Financial Ratios – Leverage

Financial ratios are financial metrics that determine relationships between aspects of a company’s operations and financial position. The next course in this series on financial ratios is focused on leverage ratios. Leverage is created through various situations including when:

• A company takes on debt to purchase specific assets.
• A company borrows money based on the overall creditworthiness of the business.
• A company borrows money to finance an acquisition. 
• A private equity firm (or other company) does a leveraged buyout.  
• An individual works with options, futures, margins or other financial instruments.

Equity investors borrow money to leverage their investment portfolio. A leverage ratio looks at how much capital comes in the form of debt (loans) or assesses the ability of a company to meet its financial obligations.  The leverage ratio is important given that companies rely on a mixture of equity and debt to finance their operations.

This course focuses on various leverage ratios, their purpose, calculation, and meaning.

Note: This course is also a part of The Controllership Series.