Using leverage in business

how leverage can be used in business to improve profitability.


Just as a lever helps lift heavy loads, operating and financial leverage can be used in business to lift up profits.

AUTHOR(S): Deepa Vasudevan


Leverage as a concept in Applied Finance

A business makes investment and financing choices regarding long term assets from time to time. These are strategically important decisions because they could impact business risk and corporate cash flows for many years in the future. The concept of leverage comes handy when taking the financing decision. It helps understand:
- How operating leverage can be used to magnify operating profits
- Linkages between operating leverage, business risk and break even level
- How Financial leverage can be used to magnify net profits
- Relationship between financial leverage and financial risk
- Factors that impact the leverage decision in practise
All these aspects are covered in a Finance course "Leverage and Lending" offered by Centre for Investment Education and Learning. This course is an intermediate level course suitable for all those who want to make a career in a financial services company. It is part of a broader certification called 'Applied Finance for Business'.

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