From the course: Finance Strategies for Business Leaders
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The value of leverage
From the course: Finance Strategies for Business Leaders
The value of leverage
- CEO's and CFO's of companies all face a common challenge. And that is to try to find ways to use leverage to help their companies grow. This is sort of like how people get mortgages by putting only 10% down on a house and the bank brings the other 90%. That's leverage. And interest is the cost for that leverage. People usually don't worry too much about it because they expect the price of their home will rise over time. The truth is, they can probably get a better rate of return for their money than by buying their house outright. And, it's the same for companies. A company might own buildings and equipment and facilities, but it doesn't usually want to own them outright. The company's leadership will often try to maximize the value of its assets by having debt against the assets. Companies want to use something finance folk call OPM, which stands for other people's money. Let me explain. If you pay $1 million cash…
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