Agricultural Economics, Department of
Cornhusker Economics
Understanding Leverage
Date of this Version
2-18-2026
Document Type
Newsletter Issue
Citation
Cornhusker Economics (February 18, 2026)
Agricultural Economics, University of Nebraska-Lincoln
Abstract
Loosely defined, “leverage” is how much debt a firm uses in relation to equity. The leverage ratio, total debt/total equity, contextualizes an absolute amount of debt. $1,000,000 of debt may seem like a large amount, but to a firm with equity of $10,000,000, it is quite conservative. While the debt/equity ratio is useful in contextualizing overall debt, its relationship with the interest rate is a more sophisticated idea, and one that can help producers understand how wisely-used debt can enhance firm/farm performance.
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