Leverage ratio
The extent to which a business is funded by debt.
Definition
Leverage ratios such as debt-to-equity or net debt to EBITDA express how much of the business is financed by borrowing relative to its own capital or earnings.
Why it matters
Leverage amplifies both directions. Debt that is comfortable in a good year becomes the binding constraint in a bad one, which is why lenders set covenants against these ratios.
Related terms
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