What is Leverage

leverageToday As I was walking to work I was thinking what is leverage and how can I use it? In it’s most basic definition leverage is getting more work done than the effort you put in.

The word leverage can be used in different contexts:

In physics, leverage is the factor by which a lever multiplies a force. Read more about that here.

In the finance world leverage has many different meanings. But the general meaning is to use the little amount of money you have to acquire more money (usually in the form of a loan). Here are some examples:

  • A “leveraged buyout” is where someone has purchased a company by taking on debt.
  • Getting a mortgage on a home involves making a down payment. You’re leveraging the down payment to get the full value of the mortgage.
  • In investing you can use a margin account to borrow money, and control a larger amount of stocks than you would otherwise be able to afford.
  • You can express a company’s “leverage” as the amount of debt divided by the amount of equity capital.

Using the more general definition of what is leverage however and there are many other cases where it can be used.

In the online world you can leverage another websites traffic, by purchasing an advertisement on their site. You can leverage syndication networks to have an article written once show up on many websites. You can leverage the power of Google to direct more traffic to your site through the use of SEO techniques. By programing the computer to do something that used to be manual, you’re leveraging the computers time for your own.

Businesses leverage their employees to get more work done more efficiently.

Leverage is a key thing to think about when you want to get a bigger impact from a small amount of work. What is leverage and how can it be used should be something that you are asking yourself for all the work you do.