PLEASE NOTE: the following is an excerpt from "20 Competitive Metrics Every Business Needs to Know," which is now available as a free download here.
Performance Metric: LEVERAGE
Definition: A MEASUREMENT OF HOW A COMPANY USES DEBT TO FURTHER ITS OPERATIONS
Importance: Companies use debt to acquire assets in the hope that the income generated from those assets will be greater than the cost to service that debt over time. In most cases, the greater the debt the greater the risk because a company that is highly leveraged is more likely to go bankrupt than one that isn't. On the other hand, a company that has very low levels of debt may not taking advantage of the growth opportunities that additional leverage may offer.