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Definition of Leverage. action of a lever; mechanical power supplied by a lever; influence, ability to affect or alter people or circumstances; use of borrowed money to increase the return on an investment. use one's influence to affect people or circumstances; increase the return on an investment by using borrowed money.
What is financial leverage? Financial leverage refers to the use of debt to acquire additional assets. Financial leverage is also known as trading on equity. Below are two examples to illustrate the use of financial leverage, or simply leverage. Mary uses $400,000 of her cash to purchase 40 acres of land with a total cost of $400,000. Mary is not using financial leverage. Sue uses $400,000 of her cash and borrows $800,000 to purchase 120 acres of land having a total cost of $1,200,000.