Debt Vs Leverage

Generally, companies have two options when they wish to raise money. They can issue shares of stock, which are also

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known as equities. Alternatively, they can issue bonds, which are also known as debt instruments. Leverage ratios tell investors how much debt a company has outstanding relative to the equity in their capital structure. I will write the above soon, lets discuss about Leverage and debt now.

Recently Sen. Rob Portman (R-Ohio) with Politico said, “Let’s use the debt limit, yes, as leverage.” As a practical matter, what he meant was, congressional Republicans should threaten to hurt Americans on purpose unless President Obama agrees to slash public investments. Because the White House won’t want such a catastrophe, Republicans will have “leverage” that Portman wants to see his party “use.”

In the finance world, debt and leverage are used interchangeably. Continue reading “Debt Vs Leverage”