Disclaimer & Affiliate disclosure: The information provided on this post is for general informational purposes only and should not be considered financial or legal advice. Always consult with a financial advisor or attorney before making any financial decisions. Some of the links in this post are affiliate links, meaning, at no additional cost to you, we will earn a commission if you click through and make a purchase.
What is Leverage
The use of debt (borrowed cash) to increase the returns on an investment or project is known as leverage.
Instead of issuing stock to raise capital, companies employ leverage to finance their assets.
Leverage refers to the use of debt (borrowed funds) to amplify returns from an investment or project.
Investors use leverage to multiply their buying power in the market.
Companies use leverage to finance their assets—instead of issuing stock to raise capital.
This is something we’ve always read of.
Leverage enables one to do more.
You are unable to bear 500 kilograms. However, you can drag too much with wheels.
That is the concept of leverage.
In finance, the more money you have, the more money you will make – if (and this is a major if) you do it correctly.
Loans and financing allow businesses and individuals to do much more than they might otherwise.
Apple, Google, Facebook, and Amazon would not exist if it weren’t for the financial leverage they received in the form of funding during their early years.
Boeing and Airbus, like many others, took out loans.
Boeing released the Boeing 747 in 1969, which was a fantastic plane.
It’s almost clear that you’ve seen it.
In the front of the plane, there is a double-decker. It has a capacity of over 600 passengers.
This is a very famous aircraft.
A group of European companies began developing a successor to the Boeing 747 in 1990.
These businesses were incorporated into what is now known as Airbus in the year 2000.
Airbus presented the world with an unlikely sight after nearly 15 years of growth.
The Airbus A380 is the largest passenger plane in the world.
It has the capacity to transport over 800 people (nearly as much as a train can). It was a true front-to-back double-decker. It was 40 percent larger than the Boeing 747 in terms of floor area.
This behemoth took to the air for the first time in 2005.
Nobody believed the plane could fly and turn at such extreme angles.
They conducted a number of experiments. Scraping the tail before taking off was one of them. The plane was extremely durable.
The orders began to pour in.
Of course, Airbus had to take out a large loan to build this plane.
Boeing had taken loans on the other side of the Atlantic Ocean, in the United States.
They weren’t, however, operating on a bigger plane.
They were developing the Boeing 787 Dreamliner, a small plane that would be more fuel efficient than anything before it. Just about 250 people will be able to sit in it.
They believed that smaller, more powerful planes were the way of the future.
Consider it for a moment. The companies would not have been able to embark on these missions if not for the loans.
The idea was that the loans’ leverage would enable them to create a product that was so good that their profits would skyrocket. They’d be able to comfortably repay the loans as a result of this.
Fortunately for Airbus and Boeing, orders began to pour in. They continued to repay their debts.
Things turned out differently than expected a few years later.
Yes, more people were travelling, but in smaller numbers and to new, smaller destinations.
It wasn’t because there were more people flying the same path.
Airlines must fill a minimum number of seats in a plane to make a profit.
It was simpler on the Boeing 787. It was much more difficult on the Airbus A380.
The Airbus A380’s orders began to fade away.
The Boeing 787 was performing admirably.
At this point, the leverage given by the massive loan began to work against Airbus. They had to pay back the money, but they didn’t get the income they expected from the Airbus A380.
(Upstox is one of India’s largest and fastest-growing brokers with over 40 lakh users. The app is easy-to-use, for both pro traders and beginners, and allows you to invest in Stocks, Futures, Options, Mutual Funds, Digital Gold, and more. Opening an account is fast and paperless! Sign up now from our link to open your account at just ₹249 and enjoy FREE investing in Equity Delivery Trades: https://bv7np.app.goo.gl/MMpj)
Airbus eventually made the decision to end the project. There will be no more Airbus A380s.
Airbus’ repayment of the loan has been a major headache. Fortunately, Airbus has a few other planes that are very successful.
If you’ve ever flown with Indigo Airlines, you’ve most likely been on one of these highly popular Airbus planes.
Perhaps they would have been in even more trouble if they had been too optimistic and taken out a large loan.
Although Boeing’s 787 is doing well, the company is having major problems with another plane.
Unfortunately, the problem is with one of the company’s best-selling planes.
So, yeah, even Boeing has loan issues. But that’s a storey for another day.
On the brighter side, do you use a Jio SIM?
Reliance had to borrow a lot of money.
Billions of dollars.
Without it, India’s mobile revolution might not have happened.
Fortunately for Reliance, it produced a money printing behemoth with Jio. It was able to repay its debts in a timely manner.
Reliance, on the other hand, took a step forward IN 2020. It was able to collect enough funds to repay all of its debts. All $21 billion of it.
Reliance used leverage correctly.