Leverage

Leverage in financial terms refers to the use of borrowed capital (debt) to increase the potential return on investment. It amplifies both the potential for gains and the risk of losses. Companies use leverage to finance their operations, expansions, or acquisitions without diluting ownership through equity issuance.

For instance, a company may leverage debt by taking out a loan to invest in equipment, aiming to increase productivity and profit. However, if the investment doesn’t generate expected returns, the company still needs to repay the debt, which could exacerbate financial losses. Understanding leverage is crucial for businesses in the UAE’s competitive financial landscape, where financing terms, such as interest rates, can vary significantly.