I just read a book from Robert T Kiyosaki and Donald Trump entitled ‘ Why We Want You To Be Rich ‘ . The book is good but I’ve problem to understand some term. One of the words is leverage.
As the word is many written on the book so I need to really understand about it. This is my finding about the meaning of leverage.
What is Leverage
– The use of various financial instruments or borrowed capital such as margin to increase the potential return of an investment.
– The amount of debt used to finance a firm’s assets. A firm with significantly more debt than equity is considered to be highly leveraged.
– Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.
Reference :- Investopedia
What is financial leverage
– The degree to which an investor or business is utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt; they may also be unable to find new lenders in the future. Financial leverage is not always bad, however; it can increase the shareholder’s return on investment and often there are tax advantages associated with borrowing.
Reference :- Investorwords
I think this definition give me clear definition about leverage. Hopefully I could understand more about leverage because Robert and Donald really put the leverage as an important thing to understand to become rich. As I’ve aim to become rich in the future I think it is important to know about leverage.