Leverage

Leverage is the prefered word in the U.S. to what we call gearing.

Its the ratio of a companys debts to its equity. In other words the ratio of borrowings to its share capital.

People who like to take a risk when it comes to investing will borrow money to invest. Such people are said to be gearing up.

If you borrow to invest it doesnt take the brain of Einstein to see that if things go well the gearing effect means you can make bundles of money. Equally if things go wrong you could lose a packet.

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2009-02-17 00:00:00 © Moneyextra.com