Leverage - Revision history

imported>Doug Williamson: Layout.

2022-07-21T04:44:51Z

Layout.

← Older revision		Revision as of 04:44, 21 July 2022
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	==Other ~~links~~==		==Other resource==
	[http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, ''Will Spinney'', The Treasurer]		[http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, ''Will Spinney'', The Treasurer]

	[[Category:Corporate_finance]]		[[Category:Corporate_finance]]

imported>Doug Williamson: Add links.

2022-05-14T18:17:48Z

Add links.

← Older revision		Revision as of 18:17, 14 May 2022
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	* [[Debt]]		* [[Debt]]
	* [[Deleverage]]		* [[Deleverage]]
			* [[European Leveraged Finance Association]]
	* [[Equity]]		* [[Equity]]
	* [[Financial risk]]		* [[Financial risk]]
	* [[Gearing]]		* [[Gearing]]
	* [[Leverage Ratio]]		* [[Leverage Ratio]]
			* [[Leveraged]]
			* [[Leveraged buyout]]
			* [[Leveraged finance]]
			* [[Leveraged takeover]]
	* [[Liquidity]]		* [[Liquidity]]
	* [[Liquidity risk]]		* [[Liquidity risk]]

imported>Doug Williamson: Re-order.

2021-12-01T11:33:57Z

Re-order.

← Older revision		Revision as of 11:33, 1 December 2021
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	==Leveraging up==		==Leveraging up==

	To 'leverage up' means to increase the level of gearing in an operational or financial structure. The intention of leveraging up is to improve expected net results~~. <br />~~		To 'leverage up' means to increase the level of gearing in an operational or financial structure. The intention of leveraging up is to improve expected net results.
	~~A consequence of leveraging up is normally to increase financial risk.<br />~~
	~~Many financial disasters have been a consequence of leveraging up excessively in this way in earlier periods~~.

			A consequence of leveraging up is normally to increase financial risk.

	~~<span style="color:#4B0082">'''''Example 2: Virgin's loan notes secured on Heathrow landing slots'''''</span>~~		Many financial disasters have been a consequence of leveraging up excessively in this way in earlier periods.

	:"Virgin Atlantic Airways secured an impressive £220m senior secured note transaction using the airline's [rights to use] take-off and landing slots at London Heathrow Airport. It is the first time in European air travel history that airport slots have been ~~leveraged~~ in this way."

	~~:''~~The ~~Treasurer magazine, February 2017 p25~~ - ~~Deals of the Year~~ - ~~Bonds below £500m winner~~.''		The opposite process - reducing financial risk - is known as deleverage.


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	<span style="color:#4B0082">'''''Example 3: Leverage in derivatives trading'''''</span>		<span style="color:#4B0082">'''''Example 2: Leverage in derivatives trading'''''</span>

	10:1 leverage means that an investor needs to provide GBP 10,000 in order to control a position of a GBP 100,000 value futures contract while taking responsibility for any losses or gains their investments incur. <br />As a result if the value of the contract rose by 10% to GBP 110,000, there will be a potential profit of 100% (= 10 x 10%) relative to the amount of GBP 10,000 invested.<br /><br />		10:1 leverage means that an investor needs to provide GBP 10,000 in order to control a position of a GBP 100,000 value futures contract while taking responsibility for any losses or gains their investments incur. <br />As a result if the value of the contract rose by 10% to GBP 110,000, there will be a potential profit of 100% (= 10 x 10%) relative to the amount of GBP 10,000 invested.<br /><br />
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	It is also possible to lose more than the entire value of the initial investment.<br />		It is also possible to lose more than the entire value of the initial investment.<br />
	This is why derivatives trading can be so dangerous for the investor.		This is why derivatives trading can be so dangerous for the investor.


			==Making fuller use of existing assets==

			Leverage can also mean making better or fuller use of an existing asset.

			For example, identifying additional assets to use as borrowing collateral.


			<span style="color:#4B0082">'''''Example 3: Virgin's loan notes secured on Heathrow landing slots'''''</span>

			:"Virgin Atlantic Airways secured an impressive £220m senior secured note transaction using the airline's [rights to use] take-off and landing slots at London Heathrow Airport.

			:It is the first time in European air travel history that airport slots have been leveraged in this way."

			:''The Treasurer magazine, February 2017 p25 - Deals of the Year - Bonds below £500m winner.''


	==Leverage as strong negotiating position==		==Leverage as strong negotiating position==

	In the context of negotiations, leverage refers to the relative ~~negotating~~ strength of a party.		In the context of negotiations, leverage refers to the relative negotiating strength of a party.


	== See also ==		== See also ==
			* [[Collateral]]
	* [[CRD IV]]		* [[CRD IV]]
	* [[Debt]]		* [[Debt]]
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	* [[Liquidity]]		* [[Liquidity]]
	* [[Liquidity risk]]		* [[Liquidity risk]]
			* [[Note]]
	* [[Prudential Regulation Authority]]		* [[Prudential Regulation Authority]]
			* [[Security]]
	* [[Stability]]		* [[Stability]]

imported>Doug Williamson: Add link.

2021-11-07T00:47:04Z

Add link.

← Older revision		Revision as of 00:47, 7 November 2021
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	* [[Deleverage]]		* [[Deleverage]]
	* [[Equity]]		* [[Equity]]
			* [[Financial risk]]
	* [[Gearing]]		* [[Gearing]]
	* [[Leverage Ratio]]		* [[Leverage Ratio]]

imported>Doug Williamson: Add definition.

2020-10-14T23:01:18Z

Add definition.

← Older revision		Revision as of 23:01, 14 October 2020
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	==~~Leverage~~ calculation==		==Financial leverage calculation==

	~~Leverage~~ is most commonly defined as debt divided by Debt plus Equity		Financial leverage is most commonly defined as debt divided by Debt plus Equity

	= D / (D + E).		= D / (D + E).
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	<span style="color:#4B0082">'''''Example 1: Leverage calculation'''''</span>		<span style="color:#4B0082">'''''Example 1: Leverage calculation'''''</span>

	If the amounts of debt and equity were equal then leverage under this definition would be calculated as:~~<br />~~		If the amounts of debt and equity were equal then leverage under this definition would be calculated as:

	1 / (1 + 1) = 50%.		1 / (1 + 1) = 50%.

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	==Broader definitions==		==Broader definitions==

	The term 'leverage' is also used in a broader sense to refer to the amount of debt in a firm's financial structure.~~<br />~~		The term 'leverage' is also used in a broader sense to refer to the amount of debt in a firm's financial structure.
	Used in ~~this~~ broader ~~sense~~, 'leverage' means very much the same as 'gearing'. ~~<br />~~
			It may also refer to the amount of fixed costs - as opposed to variable costs - in the firm's cost structure.

			Used in these broader senses, 'leverage' means very much the same as 'gearing'.

	However, leverage and gearing are normally quantified by different calculations.		However, leverage and gearing are normally quantified by different calculations.

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	It is also possible to lose more than the entire value of the initial investment.<br />		It is also possible to lose more than the entire value of the initial investment.<br />
	This is why derivatives trading can be so dangerous for the investor.		This is why derivatives trading can be so dangerous for the investor.


			==Leverage as strong negotiating position==

			In the context of negotiations, leverage refers to the relative negotating strength of a party.

imported>Doug Williamson: Layout.

2020-01-15T10:15:32Z

Layout.

← Older revision		Revision as of 10:15, 15 January 2020
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	* [[Prudential Regulation Authority]]		* [[Prudential Regulation Authority]]
	* [[Stability]]		* [[Stability]]


	==Other links==		==Other links==

imported>Doug Williamson: Expand Broader definitions section.

2019-02-09T15:54:33Z

Expand Broader definitions section.

← Older revision		Revision as of 15:54, 9 February 2019
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	Used in this broader sense, 'leverage' means very much the same as 'gearing'. <br />		Used in this broader sense, 'leverage' means very much the same as 'gearing'. <br />
	However, leverage and gearing are normally quantified by different calculations.		However, leverage and gearing are normally quantified by different calculations.


			When not quantified, 'leverage' may also imply relatively higher levels of debt finance.

imported>Doug Williamson: Historic date removed.

2018-04-11T14:57:01Z

Historic date removed.

← Older revision		Revision as of 14:57, 11 April 2018
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	==Other links==		==Other links==
	[http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, The Treasurer~~, July 2012~~]		[http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, ''Will Spinney'', The Treasurer]

	[[Category:Corporate_finance]]		[[Category:Corporate_finance]]

imported>Doug Williamson: Link with CRD IV page.

2017-04-04T08:04:16Z

Link with CRD IV page.

← Older revision		Revision as of 08:04, 4 April 2017
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	== See also ==		== See also ==
			* [[CRD IV]]
	* [[Debt]]		* [[Debt]]
	* [[Deleverage]]		* [[Deleverage]]
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	* [[Gearing]]		* [[Gearing]]
	* [[Leverage Ratio]]		* [[Leverage Ratio]]
			* [[Liquidity]]
	* [[Liquidity risk]]		* [[Liquidity risk]]
	* [[Prudential Regulation Authority]]		* [[Prudential Regulation Authority]]
	* [[Stability]]		* [[Stability]]


	==Other links==		==Other links==

imported>Doug Williamson: Clarify that the slots are not owned by the airline. Source: The Treasurer, February 2017, p25.

2017-02-11T20:20:16Z

Clarify that the slots are not owned by the airline. Source: The Treasurer, February 2017, p25.

← Older revision		Revision as of 20:20, 11 February 2017
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	<span style="color:#4B0082">'''''Example 2: Virgin's loan notes secured on Heathrow landing slots'''''</span>		<span style="color:#4B0082">'''''Example 2: Virgin's loan notes secured on Heathrow landing slots'''''</span>

	:"Virgin Atlantic Airways secured an impressive £220m senior secured note transaction using the airline's take-off and landing slots at London Heathrow Airport. It is the first time in European air travel history that airport slots have been leveraged in this way."		:"Virgin Atlantic Airways secured an impressive £220m senior secured note transaction using the airline's [rights to use] take-off and landing slots at London Heathrow Airport. It is the first time in European air travel history that airport slots have been leveraged in this way."

	:''The Treasurer magazine, February 2017 p25 - Deals of the Year - Bonds below £500m winner.''		:''The Treasurer magazine, February 2017 p25 - Deals of the Year - Bonds below £500m winner.''