Financial leverage is borrowing money at a fixed cost to boost returns, and trading on equity is using that debt hoping the earnings will outrun the interest. At 12% debt, if your company earns 18% on the borrowed funds, your EPS grows; but if earnings drop to 8%, you'll eat a loss, magnified by that very leverage.
I've seen too many small shops on G.S. Road sink because they borrowed for a second location, seduced by the maths on paper, only to find the market's tune changes. My own flute, baahi, needs a steady breath—too much force and the note cracks. Debt is the same; it amplifies the pressure, good or bad.
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