A business is said to be overleveraged when it is carrying too much debt when compared to its operating cash flows and equity. An overleveraged company has difficulty in paying its interest and principal payments and is often unable to pay its operating expenses because of excessive costs due to its debt burden, which often leads to a downward financial spiral. This results in the company having to borrow more to stay in operation, and the problem gets worse. This spiral usually ends when a company restructures its debt or files for bankruptcy protection.
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