The leverage ratio measures a company’s ability to utilize borrowed capital for asset acquisition. It expresses the relationship between borrowed capital and the company’s equity, providing an indication of the amount of debt used to support its activities. A higher result indicates a greater reliance on debt, enhancing potential returns on investments but also raising financial risk. Conversely, a lower result suggests less dependence on debt and greater financial stability but may limit expansion opportunities. Prudent management of the result is essential to balance returns and financial risk for a company.
