Sometimes the language of finance makes it sound more complicated than it really is. Here we look at leverage from an individual perspective and then apply that understanding to corporate finance.
What Is Leverage?
Financial leverage simply means borrowing. It’s debt. When you use someone else’s money to finance your business operations or purchase assets, that’s leverage. So why would you want to use leverage?
Say you want to buy a rental house that costs $100,000. If you pay for it outright, you’re not using financial leverage and you’ve got $100,000 of your own money tied up in that investment, 100%.
Using leverage, that same …read more

Turn on the news and you’ll see companies everywhere trying to shore up their balance sheets in anticipation of weak sales and reduced access to credit. Adequate working capital is crucial in these tough times to stay in business.
My predecessor, Ren Garcia, has given us a nice portrayal of a business wimp as one without enough working capital. And Randy Meyers at CFO Magazine has warned that the temptation to extend payments is a sign of working capital trouble.
Here’s how to keep an eye on yours!
Working Capital and Related Ratios
Working capital is defined as the amount …read more