Welcome to the enchanted world where tiny assets magically grow into gigantic business ventures! This isn’t some Hogwarts hocus-pocus; it’s all about leverage. And no, we’re not talking about a “lever” for lifting heavy furniture—it’s finance, dear reader! Let’s catapult you into a comprehensive understanding of leverage!
What the Heck is Leverage? 🤔
In the financial realm, leverage is synonymous with gearing in some peculiar places. But in the ol’ US of A, it means waving a wand over limited company assets to conjure substantial loans. Imagine taking a handful of magic beans and growing a gigantic financial beanstalk. That’s leverage!
The Magic Formula 🧙♂️
How does this financial wizardry work? Here’s a simple formula for you:
1Leverage = Total Company Debt / Total Company Equity
In real terms, think of it as how much debt the company is using compared to its own
