4 ms·
Yes, it seems he even mixed definitions as well. He said that the $110M in assets and $100M in liabilities was a 10:1 leverage. However, later he says that a h
by Nemi 4y ago
Yes, it seems he even mixed definitions as well. He said that the $110M in assets and $100M in liabilities was a 10:1 leverage.
However, later he says that a home owner with a down payment of 20% is levered 5:1. Yet, if we do the same math as he did above, then 20% of $100,000 loan is $20k in equity with an $80k loan, giving a leverage ratio of 4:1.
- gota 4y agoI came to the comments to check if that was correct - I was following that definition and calculated 4:1 in my head, too. Later he uses the example of purchasing $2000 worth of ($10) stock by paying just $1000 and having the other thousand lent by the brokerage. As per his definition, $2000 in stocks (assets) minus the $1000 loan (liability) equals $1000 in equity. Then if leverage = equity/liability, in this case it turns out to be 1:1