The Debt/Equity Ratio is a measure used to evaluate a company's financial leverage, calculated by dividing its total liabilities by stockholders' equity.
Deleveraging is the process of reducing the level of one's financial leverage. This term often refers to corporations but has broadened to include any entities that suffer from too much debt, including individuals, governments, and economic sectors such as real estate. The primary aim is to reduce financial risk.
Financial leverage refers to the use of borrowed funds to increase an investment's potential return. While it can amplify returns, it simultaneously increases the risk of loss.
Leverage involves the use of borrowed funds to increase an investor's purchasing power and potentially amplify the profitability of an investment. It can result in higher returns but also carries additional risk.
Operating leverage refers to the automatic increases in net operating income (NOI) or cash flow of income-producing real estate when income and expenses increase at the same rate; this effect is further enhanced when expenses are fixed.
Other People’s Money refers to borrowed funds that are invested in a money-making venture. This strategy uses debt to maximize investment profits or minimize the risk of personal loss. The underlying principle is financial leverage, which can significantly affect the return on investment.
