What is meant by leverage?
A) It is the ability of a business to borrow from banks.
B) It refers to the use of debt to enable higher returns to shareholders.
C) It refers to the credit-worthiness of borrowers whom the bank extends loans to.
D) It is the practice of re-investing shareholders' funds in the business.

Question

Quizplus · Accepted Answer

Leverage refers to the use of borrowed funds (debt) to finance the purchase of assets, with the expectation that the income or capital gain from the investment will exceed the cost of borrowing. This can amplify returns to shareholders if the investment is successful.

What Is Meant by Leverage