Effect of leverage on Industry.

Leverage is a very broad concept and really very important, specially for operation and finance people.
Conceptual and examination related knowledge will come from text books, here I am not going to discuss on that. Here I am writing on, "how leverages works in real world of finance"
One aspect of leverage is debt/equity ratio. In simple language it can be said as-
Total loan taken/shareholder's capital.

Ex- A's shareholder's capital=50,000

in case company a holds a loan amounting rupees=25000 Debt/equity ratio=0.50 and
in case company a holds a loan of rupees=100000 then Debt/equity ratio=2

Now the question is- why this ratio is so important?
It is very important to know the risk profile of the company as well as it also tells us about owner's Confidence in the company.

Risk- As happened in 2007-2009 Companies had taken huge amount of loan which lead to their collision.
In Lehman brothers case the debt equity ratio was around 29 times in last annual financial statement.
It means if Lehman brothers had $1 of their own they had $29 payable to others.

Confidence of owner- In case owner has issued more than 50% of his Equity Capital the confidence of owner can be questioned, but it doesn't mean that the owner have loosed his confidence in the company, there can be other reasons also. But if owner is continuously declining his holding in the company and hesitating in raising money through loans then these are the clear signals of loosing faith in company.
It means that owner is not sure if his company will be able to repay loans. In this case you will find promoter's holding declining over the period of time and debt/equity ratio also declining.