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Leverage

LEE-ver-ij /ˈliːvərɪdʒ/

nounverbC1GMATGRE

formalbusiness

(noun) The use of borrowed capital to increase the potential return of an investment; (verb) to use (something) to maximum advantage.

In finance, it magnifies both potential gains and losses. Outside finance, it refers to using an existing advantage or resource to achieve a desired outcome.

The story behind the word. The word 'leverage' comes from 'lever,' which itself is from Old French levier, meaning 'a lever.' The root is Latin levare, 'to lighten, to raise.' A lever is a tool that allows a small force to lift a heavy weight, thus 'magnifying' the force. This mechanical sense evolved into the financial meaning of using borrowed capital to magnify returns (or losses) and the general sense of using an advantage to achieve a greater effect.

Word relationships

Advantage: A condition or circumstance that puts one in a favorable position; 'leverage' implies actively using that advantage.
Influence: The capacity to have an effect on the character, development, or behavior of someone or something; 'leverage' implies using that influence strategically.
Magnify: To make something appear larger than it is; 'leverage' magnifies financial outcomes.

Disadvantage: An unfavorable circumstance or condition.
Handicap: A circumstance that makes progress or success difficult.

Word family

Leveraged (adjective): Financed with a relatively high proportion of debt.
Lever (noun): A rigid bar resting on a pivot, used to help move a heavy or firmly fixed load with one end when pressure is applied to the other.

Collocations

financial leverage
high leverage
low leverage
leverage assets
leverage a situation
debt leverage

Example sentences

"The company used leverage to acquire a smaller competitor, significantly expanding its market share." Financial strategy
"Her extensive network of contacts gave her significant leverage in negotiating the deal." Business negotiation
"While leverage can amplify returns, it also increases exposure to potential losses, making it a high-risk strategy." Investment risk

Memory hook

Think of a LEVER that helps you lift something heavy with little effort. Financial LEVERAGE helps you control a large investment with a smaller amount of your own money. LEVER lifts big things.

When not to use

Do not use 'leverage' to describe a situation where no borrowed capital is involved (in finance) or where no existing advantage is being exploited (general use). It implies amplification or strategic use.

Fun facts

In physics, 'mechanical advantage' is the principle behind a lever, allowing a small input force to produce a larger output force.