If you have $100 to invest and you expect to make a return of 15% in a year, you will be able to get $15 as profit at the end of the year.

If you can borrow some money from your friend, say $200, at 10% interest for one year, you will have to pay $220 to your friend at the end of the year.

If you invest these borrowed $200, along with your own $100, at a return of 15% in an year, you would have $345 at the end of the term. After returning $220 to your friend, you will be left with $125.

Effectively, you have made a profit of $25 on your initial capital of $100.

What you did was to ‘lever’ your own $100 with a loan of $200 and you made extra returns in one year.

This concept is widely used in the industry and is called leveraging. The ratio of loan (or debt) to own money (or equity) is called the lever ratio. In this case your leverage was 2:1 of Debt: Equity.