Leverage Ratio

See: Debt-to-EBITDA.

How much leverage can you handle = how much debt can you handle?

So think about it. If you generate $100 million in cash flow, and if 100% of that money went to pay interest on debt, and the debt cost 5% a year to rent...then you could, in theory, only handle $2 billion in debt.

In real life, few lenders would give you that much dough to borrow, because should one tiny thing go awry, the debt payments would be missed and the bank would then have to take over the company, as they'd likely own all of its equity...and the whole thing would be a mess.

In this case, the leverage ratio would be some 20-to-1 debt to cash flow. In real life, leverage ratios above 4x or 5x are pretty rare, even in this very low interest rate environment. But if you can pull off a big borrowing and make the equity grow, then your eventual leveraged outcome is massively better than it would have been had you had no leverage to your equity growth efforts.