The words “leverage” or “debt” often generate different perceptions within the business environment. However, far from being limiting tools, when used appropriately, they can become key drivers to accelerate a company’s growth, transforming what some see as ‘risk’ into a competitive advantage and a catalyst for progress.
Financial leverage is the use of debt to finance a company’s operations and/or investments, with the main objective of driving growth and increasing profitability. It is a key management tool that enables businesses and projects to expand beyond their own resources, enhance their impact, achieve goals more efficiently, and make their capital more productive.
The core value of financial leverage goes beyond simply taking on a loan or incurring debt—it lies in how that debt is structured. A proper structure involves considering the term (how long the debt will remain active), the interest rate, the repayment conditions, and above all, ensuring that the use of financing is aligned with the company’s strategic objectives. When properly structured, financial leverage provides companies with the ability to execute strategic projects without relying entirely on their own capital. Rather than waiting to accumulate internal funds or dilute ownership, the company can move forward with initiatives aligned with its long-term vision. By combining internal resources with external financing, operational capacity increases, project execution is accelerated, and growth is guided by strategic objectives rather than cash availability.
When well structured, financial leverage can generate multiple benefits that strengthen a company’s growth capacity and sustainability, including:
- Increasing return on equity by generating profits with external capital.
- Enabling project execution without depleting liquidity, keeping capital available for other needs.
- Avoiding equity dilution, as it doesn’t require giving up ownership.
- Promoting financial discipline by requiring planning and cash flow control.
- Facilitating investment in productive assets such as equipment, technology, or expansion.
- Optimizing the capital structure, improving overall business profitability.
- Reducing direct exposure of internal capital by complementing it with external financing.
There are several key indicators that help monitor the level and health of financial leverage. The Debt/EBITDA ratio helps estimate how many years of operating earnings would be needed to repay current debt. The interest coverage ratio (EBIT over financial expenses) reflects how solvent the company is when it comes to meeting its financial obligations. Meanwhile, the Financial Debt to Equity ratio shows the company’s level of reliance on external financing relative to its own capital. It’s also useful to observe the Debt to Assets ratio, which indicates what percentage of the company’s assets are financed with debt. Lastly, indicators such as the current ratio (current assets over current liabilities) complement the analysis by showing whether the company can cover its short-term obligations.
Like any tool, financial leverage also carries risks if not used appropriately. The issue isn’t debt itself, but how it is structured, when it is taken on, and what it is used for. If a company takes on debt without a clear and reliable repayment source—or if its future cash flows are unstable—financing can become a difficult burden to sustain. The risk increases when the company assumes debt levels beyond its real capacity, or when funds are used to cover recurring operational deficits instead of driving growth. In such cases, what should be a growth tool ends up hurting liquidity and, ultimately, compromising the viability of the project.
Financial leverage should not be viewed as a risk, but rather as a tool that, when well-structured and aligned with business objectives, can be decisive in scaling, innovating, and growing with purpose. The key lies in planning, control, and a clear understanding of the company’s capacity to assume financial commitments. When used with vision and discipline, leverage not only complements internal capital—it amplifies the impact of every strategic decision.