Simply put, leverage is another way to phrase debt.
It is using borrowed capital to as a funding source when investing to expand the firm's asset base in the financial sector. Basically, it is using financial instruments or borrowed money to increase the potential return on investment.
Many use financial leverage ratios to gauge how risky a company's position is. The most common are:
- debt-to-equity
- debt-to-assets
Non-financial businesses will do the same thing to acquire inventory, equipment, or other assets.