What Does Leverage Ratio Mean?
(1) Any ratio used to calculate the financial leverage of a company to get an idea of that company’s methods of financing or measure its ability to meet its financial obligations. There are several ratios, but the main factors evaluated by a ratio include debt, equity, assets, and interest expenses. (2) A ratio used to measure a company’s mix of operating costs that yields an approximation of how changes in output will affect operating income. Fixed costs and variable costs are the two types of operating costs; depending on the company and the industry, the mix will differ. Investopedia explains Leverage Ratio (1) The best-known financial leverage ratio is the debt-to-equity ratio. For example, if a company has $10 million in debt and $20 million in equity, it has a debt-to-equity ratio of 0.5 ($10 million/$20 million). (2) Companies with high fixed costs, after reaching the breakeven point, see a greater increase in operating revenue when output is increased compared with companies wi
