Financial leverage exists when a company earns more income on borrowed money than the related interest expense on the money.

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Financial leverage refers to the use of debt financing to increase the potential return on investment. When a company earns more income on borrowed money than the related interest expense on the money, it is said to have positive financial leverage. This occurs when the company's return on investment (ROI) exceeds the cost of borrowing the funds.

Financial Leverage Exists When a Company Earns More Income on Borrowed