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.

RELATED TERMS
  1. Unlevered Cost Of Capital

    An evaluation that uses either a hypothetical or actual debt-free ...
  2. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  3. Unlevered Free Cash Flow - UFCF

    A company's cash flow before interest payments are taken into ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company ...
  5. Homemade Dividends

    A form of investment income that comes from the sale of a portion ...
  6. Degree Of Combined Leverage - DCL

    A leverage ratio that summarizes the combined effect the degree ...
Related Articles
  1. Investing

    Understanding Levered And Unlevered Free Cash Flow

    Levered cash flow is the money a business has after meeting its financial obligations. Unlevered free cash flow is the money a business has before paying its financial obligations.
  2. Investing

    Leverage

    Learn more on how leveraged investing can help you with higher investment profits through the use of borrowed money.
  3. Investing

    Leverage: Is It Good for Your Portfolio?

    Discover the concept of financial leverage. Learn multiple ways to get leverage in your portfolio, and decide if leverage is a good idea for you.
  4. Trading

    Hedge Fund Failures Illuminate Leverage Pitfalls

    Learn what mistakes cause hedge funds to collapse and how to avoid similar problems.
  5. Trading

    Borrowing Smart In A Debt-Filled World

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

    Understanding the Modigliani-Miller Theorem

    The Modigliani-Miller (M&M) theorem is used in financial and economic studies to analyze the value of a firm, such as a business or a corporation.
  7. Investing

    Leverage: What It Is And How It Works

    Leverage is an investment strategy of using borrowed money to generate outsized investment returns. Before getting into greater detail on how leverage works in an investment context, it is useful ...
  8. Investing

    Explaining Leveraged Loans

    Leveraged loans are loans extended to companies or people who already have large amounts of debt.
  9. Managing Wealth

    Unlevered Beta

    Learn about how this number provides a measure of how much systematic risk a firm's equity has compared to the market.
  10. Trading

    Adding Leverage To Your Forex Trading

    The use of margin to trade in the foreign exchange market can magnify profit opportunities.
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. 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 >>
  5. 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 >>
  6. What are the practical uses for unlevered beta?

    Understand the practical uses for a security's unlevered beta, and learn why investors should rely on a security's unlevered ... Read Answer >>
Hot Definitions
  1. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  3. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  4. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  5. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  6. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
Trading Center