Deleverage

What is 'Deleverage'

Deleverage is 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.

BREAKING DOWN '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. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
  2. Leverage Build Up

    The accumulation of additional debt to enter a position that ...
  3. Term Out

    The transfer of debt within a company's balance sheet without ...
  4. Long-Term Debt To Capitalization ...

    A ratio showing the financial leverage of a firm, calculated ...
  5. Degree Of Combined Leverage - DCL

    A leverage ratio that summarizes the combined effect the degree ...
  6. Deleveraged Floater

    A fixed-income instrument with a floating coupon rate that is ...
Related Articles
  1. Credit & Loans

    Deleveraging: What It Means To Corporate America

    Getting rid of debt is usually a good thing, but companies can also use it to become more profitable.
  2. Credit & Loans

    Debt Ratios: The Debt Ratio

    By Richard Loth (Contact | Biography)The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea as to the amount of leverage being used by a company. ...
  3. Investing News

    Does 2016 Spell the End of a Global Debt Cycle?

    Examine the growth of global debt from 2010 to 2015. Emerging market debt has grown significantly, while advanced economy debt has grown marginally.
  4. Bonds & Fixed Income

    Evaluating A Company's Capital Structure

    Learn to use the composition of debt and equity to evaluate balance sheet strength.
  5. Stock Analysis

    The Great American Deleveraging Begins

    Though deleveraging can be seen by investors as dilution, it can greatly improve a company's balance sheet. We go over some companies employing this tactic.
  6. Credit & Loans

    Explaining Leveraged Loans

    Leveraged loans are loans extended to companies or people who already have large amounts of debt.
  7. Options & Futures

    Borrowing Smart In A Debt-Filled World

    Leveraging your money can have many perks, but it's not always the smartest financial plan.
  8. Investing Basics

    Understanding Long-Term Debt

    Long-term debt is any debt or liability that is due in more than one year.
  9. Investing Basics

    Understanding Leverage Ratios

    Large amounts of debt can cause businesses to become less competitive and, in some cases, lead to default. To lower their risk, investors use a variety of leverage ratios - including the debt, ...
  10. Mutual Funds & ETFs

    Reinvesting Capital Gains In Leveraged Portfolios

    Don't get forced into action. Learn how to plan properly to avoid making rash decisions.
RELATED FAQS
  1. What are the risks of having both high operating leverage and high financial leverage?

    In finance, the term leverage arises often. Both investors and companies employ leverage to generate greater returns on their ... Read Answer >>
  2. Why would you look at a company's net debt rather than its gross debt?

    Learn the difference between net debt and gross debt, how to calculate debt using a company's financial statements and why ... Read Answer >>
  3. How do I use the debt ratio to decide when to invest in a company?

    Understand the calculation and interpretation of the debt ratio and how this metric is used by investors to analyze a company's ... Read Answer >>
  4. How does leverage work in the forex market?

    The concept of leverage is used by both investors and companies. Investors use leverage to significantly increase the returns ... Read Answer >>
  5. What are the most common leverage ratios for evaluating a company?

    Learn more about some of the most common leverage ratios used by traders to determine whether a company is using debt in ... Read Answer >>
  6. Can mutual funds use leverage?

    Learn about what types of mutual funds use leverage, how leverage can increase returns and what restrictions are in place ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center