Leverage effect

Term for the leverage effect of debt capi­tal, which is then arises when the return on assets is higher than the return on debt. The inte­rest rate to be paid on the same amount of borro­wed capi­tal is a higher return than would be the case if the invest­ment were made solely with equity capi­tal. would be the case. The diffe­rence between the inte­rest payments and the inte­rest paya­ble on the Accor­din­gly, the return on debt capi­tal repres­ents the leverage effect.