Homemade Leverage

What is 'Homemade Leverage'

Homemade leverage is a substitution of risks that investors may undergo in order to move from overpriced shares in highly levered firms to those in unlevered firms by borrowing in personal accounts.

BREAKING DOWN 'Homemade Leverage'

Mainly attributed to the Modigliani-Miller Theorem, homemade leverage describes the situation where individuals borrowing on the exact same terms as large firms can duplicate corporate leverage through purchasing and financing options.

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RELATED FAQS
  1. What's the difference between levered and unlevered free cash flow?

    The difference between levered and unlevered free cash flow can determine if a business has the means or financial ability ... Read Answer >>
  2. What does a high unlevered free cash flow indicate about a business?

    Learn the difference between levered free cash flow and unlevered free cash flow. Understand what a high unlevered free cash ... Read Answer >>
  3. Why is unlevered free cash flow important when reviewing a company's finances?

    Understand why unlevered free cash flow is important when reviewing a company's finances. Learn the importance of comparing ... Read Answer >>
  4. 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 >>
  5. When is it better to use unlevered beta than levered beta?

    Understand what a security's unlevered beta and levered beta measure, and learn which one is more accurate in measuring a ... Read Answer >>
  6. How should investors interpret unlevered beta?

    Learn what unlevered beta is, how it is calculated, and how investors can interpret the unlevered betas of companies within ... Read Answer >>
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