Debt & Leverage Glossary

The process of paying off debt through scheduled periodic payments that cover both interest and principal over a set term.

The specific mix of debt and equity a company uses to finance its operations, affecting both risk and return.

The effective rate a company pays on borrowed funds. The after-tax cost accounts for the tax deductibility of interest.

Total debt divided by total equity; measures the proportion of a company's financing that comes from creditors versus owners.

EBIT divided by interest expense; indicates how easily a company can meet its interest obligations from earnings.

The use of borrowed capital to increase the potential return of an investment, amplifying both gains and losses.

A demand by a broker for an investor to deposit additional funds when the equity in a leveraged account falls below the required minimum.

A state in which a borrower has taken on more debt than they can comfortably service, increasing the risk of default or bankruptcy.

The original amount of money borrowed in a loan, excluding interest. Loan payments reduce the principal over time.

A loan backed by collateral that the lender can seize if the borrower defaults, such as a mortgage or auto loan.

The reduction in taxable income resulting from tax-deductible expenses such as interest payments, effectively lowering the cost of debt.

A loan with no collateral backing, relying solely on the borrower's creditworthiness. Typically carries higher interest rates.