What Is Financial Leverage?

By Kristi Waterworth – Updated Jun 3, 2025 at 9:51 AM

Key Points

Financial leverage uses borrowed money to boost potential returns but increases risk.
Key ratios like debt-to-equity indicate if a company may be over-leveraged.
Effective leverage management balances potential gains with risks involved.

Financial leverage can help investors and businesses do more with what they've got, but it's not for everyone, and it's not a perfect idea in all situations. Read on to learn more about financial leverage, when it's useful, and how to determine if a company is over-leveraged.

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Business man in suit balances on a tightrope above a cloudy city — Image source: Getty Images.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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