What is a common characteristic of companies using leveraged finance?

Companies using leveraged finance typically exhibit significant levels of debt relative to equity. This characteristic arises from their strategy of using borrowed funds to amplify potential returns on investment. Leveraged finance allows companies to capitalize on growth opportunities, often financing acquisitions, expansions, or other capital expenditures that can lead to increased profitability.

By utilizing debt rather than solely relying on equity, these companies can enhance their return on equity when the investments perform well. However, this approach also introduces greater financial risk, as the company must meet interest and principal repayments regardless of its earnings performance. Thus, the concept of leverage is central to such companies, and this significant debt-to-equity relationship defines much of their financial strategy and risk profile.