Deleverage

AAA

DEFINITION of 'Deleverage'

A company's attempt to decrease its financial leverage. The best way for a company to delever is to immediately pay off any existing debt on its balance sheet. If it is unable to do this, the company will be in significant risk of defaulting.

INVESTOPEDIA EXPLAINS 'Deleverage'

Companies will often take on excessive amounts of debt to initiate growth. However, using leverage substantially increases the riskiness of the firm. If leverage does not further growth as planned, the risk can become too much for the company to bear. In these situations, all the firm can do is delever by paying off debt.

Any sign of deleverage shown by a company is a red flag to investors who require growth in their companies.
 

RELATED TERMS
  1. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company ...
  2. Overleveraged

    Occurs when a business is carrying too much debt, and is unable ...
  3. Capital Gearing

    The degree to which a company acquires assets or to which it ...
  4. Debt/Equity Ratio

    A measure of a company's financial leverage calculated by dividing ...
  5. Debt Financing

    When a firm raises money for working capital or capital expenditures ...
  6. Unlevered Cost Of Capital

    An evaluation that uses either a hypothetical or actual debt-free ...
RELATED FAQS
  1. Do stimulus checks work?

    In theory, stimulus checks are intended to increase the amount of capital in the economy. By giving back tax dollars in ... Read Full Answer >>
  2. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  3. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
  4. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  5. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>
  6. Are there leveraged ETFs that follow the retail sector?

    There are many exchange-traded funds (ETFs) that track the retail sector or elements of the retail sector, and some of those ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  2. Investing Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  3. Forex Education

    Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.
  4. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Barclays Aggregate Bond

    Explore information and analysis about the iShares Core U.S. Aggregate Bond ETF that offers broad exposure to the U.S. government and corporate bond market.
  6. Investing

    Short-Term Funds or Fixed Deposits: Is One Better?

    Choosing between short-term funds and fixed deposits? Here's what you need to know.
  7. Fundamental Analysis

    Present Value Interest Factor of Annuity (PVIFA)

    PVIFA can be used to calculate the present value of a series of annuities by considering cash flows and depreciation.
  8. Brokers

    10 Most Famous Public Companies That Went Private

    Here’s a list of the most popular listed companies that went private in recent decades.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Total Bond Market

    Learn about the Vanguard Total Bond Market exchange-traded fund, its primary portfolio holdings and risk/reward profile based on its past performance.
  10. Mutual Funds & ETFs

    ETF Analysis: Direxion Small Cap Bull 3X

    Read about a triple-leveraged exchange-traded fund that aims for 300% of the returns of the Russell 2000 Index: the Direxion Small Cap Bull 3X.

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!