financial leverage

financial leverage definition - business

financial leverage

The extent to which interest on debt magnifies changes in operating income into even greater proportionate changes in earnings after taxes. Financial leverage magnifies increases in earnings per share during periods of rising operating income, but adds significant risks for stockholders and creditors because of added interest obligations. Compare operating leverage. See also debt management ratio, debt-to-equity ratio.

The American Heritage® Dictionary of Business Terms Copyright © 2009 by Houghton Mifflin Harcourt Publishing Company. Published by Houghton Mifflin Harcourt Publishing Company. All rights reserved.

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