Why might a company choose to engage in leveraged finance?

Engaging in leveraged finance is often driven by the desire to maximize potential returns on equity. This financial strategy involves using borrowed funds to increase the amount of capital available for investment, allowing the company to undertake larger projects or investments than it could using only its equity. When these investments perform well, the returns generated can significantly boost the overall profitability of the company relative to the equity that was originally invested.

By leveraging their capital, companies aim to enhance the returns for shareholders, as the profits earned on investments made with borrowed funds can exceed the cost of that debt, leading to higher equity returns. This avenue of financing can be particularly attractive in growth phases or when pursuing aggressive expansion strategies. Additionally, if the investments made with leveraged funds yield high returns, the successful utilization of debt can result in a greater upside for equity holders, thus aligning with the company's strategic financial goals.