Leverage is usually measured by net debt / EBITDA or debt / equity ratios. Moderate leverage increases return on equity, while excessive leverage raises the risk of financial distress. Financial covenants in loan agreements may include leverage limits.
Related terms
Net debtFinancial debt and similar liabilities less cash and cash equivalents.EBITDAEarnings before interest, tax, depreciation and amortisation; used as an indicator of the cash-like profitability generated by a company's core operations.RefinancingRepaying existing debt with new financing, usually on more favourable terms.Completion accountsFinancial statements prepared as at the closing date of an acquisition, through which the final price is set by net debt and working capital adjustments.Cost of capitalThe minimum rate of return investors expect from an investment in return for the risk they take.Discounted cash flow (DCF)A valuation method based on discounting the free cash flows an asset or company will generate in the future to the present using an appropriate discount rate.
Last updated: October 22, 2026 · This definition is for general information only.