Financial Leverage
Using debt financing to increase returns on equity.
Formula
Return on Equity = Net Profit / Shareholders' Equity × 100
Real World
Elon Musk's buyout of Twitter used £13bn of debt financing — leverage that amplified returns if profitable but left the company paying ~£1.5bn annually in interest charges.
Exam Focus
Always state the risk as well as the benefit of leverage — one-sided answers rarely access the top mark band.
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