leverages

Leverage is a term used across disciplines to describe the ability to influence outcomes or to achieve more with existing resources. In everyday language, to leverage something means to use it to maximum advantage. In business, finance, and law, the plural leverages can refer to multiple instances of leverage or simply to the concept in plural.

In physics, a lever is a rigid bar that pivots about a fulcrum. By moving a smaller input force at a longer arm, a larger output force can be generated at a shorter arm. The mechanical advantage equals the ratio of the distances from the fulcrum to the input and output forces.

In finance, financial leverage uses borrowed funds to increase the potential return on an investment. It is commonly expressed as a debt-to-equity ratio or as the equity multiplier. Leverage can magnify gains when asset values rise, but it also magnifies losses and increases the risk of default if cash flows falter or interest costs rise.

Operating leverage describes how a company’s cost structure affects its earnings as revenue changes. Firms with high fixed costs have high operating leverage, so small changes in sales can produce larger swings in operating income and profit.

In modern usage, leverage also means strategically applying assets, data, or relationships to achieve competitive advantage, such as leveraging partnerships or intellectual property. Analysts emphasize balancing the potential benefits of leverage with the accompanying financial and operational risks, and they commonly apply careful assessment and governance when using leverage.