Financial leverage is used primarily for what purpose?

Financial leverage refers to the use of borrowed funds to amplify the potential return on investment. By borrowing capital, a company can invest more than it could with only its equity. If the investment performs well, the returns generated can significantly exceed the cost of borrowing, thereby increasing the overall return for equity holders.

Using financial leverage allows firms to take on larger projects or investments, which can lead to higher growth rates and increased profitability. However, it is important to recognize that while leverage can enhance returns, it also increases risk; if the investment does not perform as expected, the losses can also be magnified.

In terms of the other choices, while minimizing investment risks sounds beneficial, the nature of financial leverage inherently involves increased risks due to the obligation to repay debt. Financial leverage is not directly aimed at analyzing operating expenses or decreasing the overall capital structure; rather, it focuses on optimizing the capital structure to utilize debt effectively for higher returns. Thus, the primary purpose of financial leverage is indeed to increase the potential return from an investment.