(redirected from leverages)
Also found in: Dictionary, Thesaurus, Medical, Financial, Encyclopedia.


A method of financing an investment by which an investor pays only a small percentage of the purchase price in cash, with the balance supplemented by borrowed funds, in order to generate a greater rate of return than would be produced by paying primarily cash for the investment; the economic benefit gained by such financing.

Real estate syndicates and promoters commonly use leverage financing. A leveraged investor builds up Equity or ownership in the investment by making payments on the amount of principal borrowed from a third person. The money allotted to the repayment of interest charged on the borrowed principal is treated typically as a deduction that reduces taxable income. The greater the amount of principal borrowed, the larger the interest payments and the resulting deductions. Obviously, a taxpayer who pays cash is not entitled to deductions for interest payments. In many cases, deductions for the depreciation of thecapital asset constituting the investment are also permitted.

Any investor receives an anticipated rate of return from the investment although the rate may fluctuate depending upon the economic climate and the management of the investment. Because of the favorable tax treatment enjoyed as a result of this method of financing, the leveraged investor keeps more of the income generated by the investment than an investor who financed the investment mainly through cash. There is, however, risk involved in leverage financing. If the income generated by the investment decreases, there might not be adequate funds available to meet payment of the outstanding principal and interest, leading to substantial losses for the investor.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.


1) n. the use of borrowed money to purchase real estate or business assets, usually involving money equaling a high percentage of the value of the purchased property. 2) v. to borrow most of the funds necessary as a loan against real estate to buy other real estate or business assets. The dangers of high leverage are over-appraisal of the property to satisfy a lender, a decline in the value of the property (which may have been purchased during a period of high inflation), high carrying costs (interest, insurance, taxes, maintenance) which exceed income, vacancies, and/or inability to finance improvements to increase profits. Too often the result is the collapse of "paper" real estate empires which have been created by risky leveraging.

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.
References in periodicals archive ?
Leveraging across two antitrust domains/ A regulator can leverage its power across distinct areas within a single policy domain.
Indeed, the FTC's closing statement in DoubleClick explicitly disavowed such strategies, noting that "the sole purpose of federal antitrust review of mergers and acquisitions is to identify and remedy transactions that harm competition." But a more expansive conception of harm to competition would have allowed the FTC to leverage its merger review authority to achieve desired objectives across a broader swath of the regulatory space.
The companies with high leverages are more risky with regards to Return on Equity (ROE).It is also proved by the conclusion of the study that in the accounting-based and market-based measures, firms with High leverage are less risky and hypothesis one is opposite to it.
H1o: There is no influence of leverages on net profit in consumers' product companies.
With the latest iteration of this accord, Basel III, the control of leverage will be further strengthened.
In this article, we argue that, given the new banking environment, some of the measures of leverage currently used by policy-makers and regulators to define mandatory rules are to some extent unsatisfactory at tracking bank risk.
* Capturing tacit information held by knowledge workers, enabling others to leverage it.
A major near-term DAU strategy is to integrate and leverage our learning assets generated by the elements of the PLM, maximizing the value of all assets to the AT&L knowledge worker.
"Companies can now leverage all the advantages of Xilinx FPGAs along with the benefits of prices below Structured ASICs with the next generation EasyPath FPGAs."
Applying similar clustering concepts to storage increases the scale and performance of the storage pool while also providing significant leverage of expertise across IT personnel.
By using IP and Gigabit Ethernet for the storage networking fabric, IT managers can leverage a wealth of products, technology, staff, and resources.
This strategy allows for use of the gift tax exemptions, and provides significant leverage for creating wealth.