Leverage Any means of increasing value and return by borrowing funds or committing less of one's own. For corporations, it refers to the ratio of debt (in the form of bonds and preferred stock outstanding) to equity (in the form of common stock outstanding) in the company's capital structure. The more long-term debt there is, the greater the financial leverage. Shareholders benefit from this financial leverage to the extent that the return on the borrowed money exceeds the interest costs of borrowing it. The market value of the company rises and so do its shares. Because of this effect, financial leverage is popularly called "trading on the equity." For individuals, leverage can involve debt, as when an investor borrows money from his broker "on margin" and so is able to buy more stock than he otherwise could. If the stock goes up, he repays the broker the loan amount and keeps the profit himself. By borrowing money he has achieved a higher return on his investment than if he had paid for all the stock himself. Rights, warrants, and option contracts also provide leverage, not through debt but by offering the prospect of a high return for little or no investment.