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Leverage Effect Calculator

Work out leverage effect instantly with clear inputs, formula shown and shareable results.

About Leverage Effect Calculator

Leverage multiplies the gap between the asset return and the borrowing cost onto your own capital. It works only while the asset out-earns the debt; below the break-even return it amplifies losses just as effectively.

Formula

Levered return

Return on equity = [(E+B)r_a - B·r_b] / E; break-even r_a = B·r_b/(E+B)

Worked example

With the default values below, Leverage Effect Calculator returns Return On Your Own Capital of 21.000%. Change any input above and every figure here is recalculated in your browser.

Inputs used

Your Own Capitalminimum 0
500,000
Amount Borrowedminimum 0
1,500,000
Return On The Assetaccepts -50–100 %
12 %
Cost Of Borrowingaccepts 0–40 %
9 %

Results

Return On Your Own Capital
21.000%
Return Without Leverage
12.000%
Leverage Ratio
4.00
Asset Return Needed To Break Even
6.750%

Step by step

  1. 1Values used
  2. 2Levered return
  3. 3Return On Your Own Capital= 21.000
  4. 4Return Without Leverage= 12.000
  5. 5Leverage Ratio= 4.00
  6. 6Asset Return Needed To Break Even= 6.750

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation, tax or compounding frequency into account.
  • Figures are rounded for display to 3 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • Figures are estimates for planning only. Market returns are not guaranteed, and rates, limits and tax rules change. This is not financial or tax advice — speak to a qualified adviser before acting.
  • This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Figures are estimates for planning only. Market returns are not guaranteed, and rates, limits and tax rules change. This is not financial or tax advice — speak to a qualified adviser before acting.

Frequently Asked Questions

Why is leverage described as double-edged?

The same multiplier applies to losses. A four-times levered position loses your entire capital on a 25% asset fall.

Does the borrowing cost matter more than the amount?

Both matter, but the spread between asset return and borrowing cost is what determines whether leverage helps at all.

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