The leverage ratio measures the proportion of debt to equity or total capital within a company. It serves as an indicator of a company’s indebtedness and shows how reliant it is on external financing. A high leverage ratio may indicate increased risk, as the company becomes more vulnerable to interest rate changes or liquidity issues. This metric is particularly significant in the financial sector, where it impacts regulatory requirements like minimum capital thresholds.
Under the Standardised Credit Risk Approach (SCRA) as defined by CRR III, the leverage ratio is a crucial metric as it directly affects the calculation of Risk-Weighted Assets (RWA). Increasingly, ESG factors are integrated to ensure companies maintain sustainable and low-risk capital structures. FinAPU provides tools to analyze such metrics and effectively manage risks.
