The financial leverage ratio is also referred to as the debt to equity ratio.

The financial leverage ratio indicates the extent to which the business relies on debt financing.

Upper acceptable limit of the financial leverage ratio is usually 2:1, with no more than one-third of debt in long term.

A high financial leverage ratio indicates possible difficulty in paying interest and principal while obtaining more funding.

The financial leverage ratio is included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio.

 

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