Leverage refers to using borrowed capital to increase the potential return of an investment. It is calculated as the debt-to-equity ratio. There are different types of leverage including operating leverage and financial leverage. Operating leverage measures how fixed costs affect earnings, while financial leverage measures how interest expenses affect earnings. The degree of combined leverage summarizes how operating and financial leverage together impact earnings per share given a change in sales. It can help determine the optimal levels of operating and financial leverage for a firm.