Financial Leverage Ratio Calculator
The leverage ratio and what it does to returns — magnified in both directions, with the loss that wipes out the equity.
Leverage is total assets divided by equity.
How the financial leverage ratio calculator works
Leverage is total assets divided by equity. At a ratio of 4, every 1% move in asset value becomes a 4% move in equity — up and down alike.
The number worth knowing is the wipe-out point: the asset fall that eliminates the equity entirely, which is simply 1/ratio. At 4× that is a 25% fall; at 10× it is 10%.
Formula: leverage = assets / equity; wipe-out = 1 / leverage
Worked examples
| Inputs | Leverage ratio | Note |
|---|---|---|
| 800k of assets on 200k equity | 4 | 4× leverage — a 25% fall wipes it out |
| Unleveraged | 1 | ratio 1, no magnification |
| Heavily geared | 10 | 10× — a 10% fall is fatal |
FAQFrequently asked questions
What is financial leverage?
Using borrowed money so that a given amount of your own capital controls a larger asset. Total assets divided by equity.
How does it magnify returns?
Proportionally to the ratio. At 4× leverage, a 1% asset move becomes a 4% move in your equity — in both directions.
What is the wipe-out point?
The asset fall that eliminates your equity: 1 divided by the leverage ratio. At 4× it is 25%; at 10× it is 10%.
Is leverage bad?
It is a magnifier, not a direction. Most property purchases are leveraged 4 or 5 times and most work out. The danger is that the downside arrives faster than the upside.
What is the break-even return?
The asset return that just covers the borrowing cost. Below it, leverage is subtracting from your return rather than adding.
Where these figures come from
- CFA Institute — Quantitative Methods: The Time Value of Money — the discounting, annuity and IRR conventions used here
- US Federal Reserve — Regulation Z (Truth in Lending), APR calculation — why APR includes fees where a nominal rate does not
- ASIC MoneySmart — the Australian regulator's own consumer calculators
Last checked: September 2026. These are the standard textbook formulas; the conventions named are those of the CFA Institute curriculum and ISO 80000 usage.