Discuss the concept of leverage for a firm. Discuss the important financial and leverage ratios used. Explain the Merton-Miller theorem

The concept of leverage, in general, is used in breakeven analysis and in the development of the capital structure of a business firm. Leverage is the use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged. Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.

Financial leverage refers to the amount of debt in the capital structure of the business firm. If you can envision a balance sheet, financial leverage refers to the right-hand side of the balance sheet. Operating leverage refers to the left-hand side of the balance sheet - the ___ _________ ________ _________ ______ _____ _____ ____ ______ ________.
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