It is a technique that involves the use of borrowed funds or capital rather than fresh equity in order to purchase an asset. Leverage act as funding source when businessman expands the assets by investing. The leverage is kind of borrowed capital in order to start a project or investment. The outcome is to multiply the possible returns from a project. At the same time, leverage will also multiply the possible shortcoming risk in case the investment does not pan out. Leverage is used by both companies and investors. Companies use leverage to invest in business processes in an effort to increase shareholder value. The investors use leverage to significantly increase the returns that can be provided on investment.
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