Leverage Ratio Law and Legal Definition

Leverage ratio is a ratio used to calculate the financial leverage of a company. It helps to understand a company's financial standing. The most well known financial leverage ratio is the debt-to-equity ratio. The debt to equity ratio is a measure of how much of a company’s assets is funded through borrowing or financing and how much through equity. The debt to equity ratio is calculated by dividing the total liabilities by the shareholder’s equity. The answer got is the percentage of the company that is indebted. Generally, any company that has a debt to equity ratio of over 40 to 50% should be looked at more carefully to make sure there are no liquidity problems.