Leverage Calculator
Analyze your company's financial leverage and debt structure.
Why Leverage Matters
Financial leverage measures how much debt a company uses to finance its assets. While leverage can magnify returns, it also increases risk. Understanding your leverage ratios helps assess financial stability, risk exposure, and capital structure efficiency.
How to Use This Calculator
- Total Assets: Sum of all assets on the balance sheet
- Total Equity: Total shareholders' equity
- EBIT: Operating profit before interest and taxes
- Interest Expense: Annual interest payments on debt
- Enter values freely — we extract numbers from any format (e.g., $1M, 500K, EBIT: $150k)
- Click "Calculate Leverage" to analyze your capital structure
Key Leverage Ratios
Debt-to-Equity = Total Debt / Total EquityDebt-to-Assets = Total Debt / Total AssetsEquity Multiplier = Total Assets / Total EquityInterest Coverage = EBIT / Interest ExpenseInterpreting Leverage Ratios
| Ratio | Healthy Range | Interpretation |
|---|---|---|
| Debt-to-Equity | 0.5–2.0 | Higher values indicate more aggressive financing |
| Debt-to-Assets | < 0.6 | Percentage of assets financed by debt |
| Equity Multiplier | 1.0–3.0 | Higher values show more assets per equity dollar |
| Interest Coverage | > 3.0 | Ability to pay interest from operating income |
Industry Benchmarks
| Industry | Avg Debt-to-Equity | Typical Interest Coverage |
|---|---|---|
| Utilities | 1.5–2.5 | 3–5x |
| Technology | 0.3–1.0 | 8–12x |
| Manufacturing | 0.8–1.5 | 4–6x |
| Retail | 1.0–2.0 | 5–7x |
| Banking | 4.0–10.0 | N/A |
Pros and Cons of Leverage
Advantages
- ✅ Amplifies returns on equity when profitable
- ✅ Interest payments are tax-deductible
- ✅ Allows faster growth than equity financing alone
- ✅ Maintains ownership control (no equity dilution)
Risks
- ❌ Increases financial risk and potential bankruptcy
- ❌ Fixed interest payments reduce cash flow flexibility
- ❌ Higher leverage may increase borrowing costs
- ❌ Magnifies losses during downturns
Optimal Leverage Strategies
- Match debt maturity with asset life: Finance long-term assets with long-term debt
- Maintain coverage ratios: Ensure EBIT comfortably covers interest payments
- Consider industry norms: Leverage appropriate for your sector
- Stress test scenarios: Model performance under adverse conditions
- Monitor covenants: Stay compliant with lender requirements
Free Financial Planning Tools: Budget, Invest & Plan Retirement
Free Financial Planning Tools – Try Now
Explore All Calculators→