Financial leverage involves using borrowed money to increase the potential return on investment, often through debt financing or purchasing assets on margin.

Financial leverage amplifies both potential gains and losses, increasing a company's financial risk, as it must repay debts and interest regardless of performance.

Financial leverage can help companies expand operations, invest in growth opportunities, and increase shareholder returns without diluting ownership.

Excessive leverage increases the risk of default, limits a company's flexibility during economic downturns, and can lead to bankruptcy if obligations cannot be met.

Financial leverage can boost return on equity (ROE) by increasing net income relative to shareholder equity, as long as returns exceed borrowing costs.

Companies should consider their ability to generate consistent cash flows, the stability of their industry, and the terms and covenants of their debt agreements.