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Leverage can be simply thought of as “borrowing.” A company that is highly leveraged has borrowed a lot of money to fund its operations – and must eventually pay that money back. Technically, a leverage ratio measures how much a company has borrowed versus how much its shares are worth. With highly leveraged companies, investors that own the stock can be in trouble because investors that are owed the money have a priority claim on the things the company owns if the company can’t pay back their debt. It is, therefore, possible for owners of the stock to be left with nothing – while debt investors can at least take the companies belongings and try to sell them for cash (or just take control of the company and try to do a better job of running it).

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