Just checking… when they say someone is leveraged 3:1, does that mean: A) $3 of Assets for each $1 of Equity : Basically Assets/Equity So I have $10, and borrow $20 to get $30 of Assets or B) $3 of Debt (Leverage) for each $1 of Equity : Basically Debt/Equity I have $10, and I borrow $30 to get $40 of Assets I’m pretty sure it’s A, but want to confirm.
i think B)
Its A. If I have $100 in cash, my capital base is $100 so ratio is 1:1. Now if I borrow $200 I now have $300 in cash, and my capital base is still $100 so the ratio is 3:1 The leverage would be 3-1 = 200%
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good to know, now i wont make mistake i always that with ratios if it is 3:1, total is 4, i was pretty sure, like you have 3 apples and 1 orange.