Leverage vs Leverage Ratio

On the test, if you have a question that asks about Leverage or Leverage Ratio - step one is to define the method you'll use, and thereafter you'll be responsible for being consistent thereafter. The Grader will hold you accountable to the definition you've chosen. 


For Your Info:

 In lecture and accounting (see wikipediaLeverage is defined as




 While Leverage Ratio defined in the textbook is




Given identical Assets & Liabilities, I've charted the accounting definition of Leverage against the equivalent Leverage Ratio below. You can see that there is a small different between the two - especially for Leverage/Leverage-ratios near zero - but they otherwise tell you the same thing and move in the exact same direction. 




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