Accounting Dictionary

Financial Leverage

Borrowing money to increase your profits.

Leroy had enough money to buy 10 bikes which he could rent for $50 a day. That’s $500 a day times 30 days a month for $15000 a month. If he borrowed $1500 with a loan payment of $100 a month he could buy an additional 10. Then he would make $30,000 a month minus the $100 loan payment = $29,000. He has borrowed money or used financial leverage to increase his profits.

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