Final answer:
Leverage within the capital structure of a firm relates to the use of both equity and debt financing on the balance sheet.
Step-by-step explanation:
The use of leverage within the capital structure of a firm is related to the use of both equity and debt financing on the balance sheet.
Leverage refers to the proportion of debt and equity used to finance a firm's assets. When a firm increases its use of debt financing, it is said to have high leverage, while increasing the use of equity financing results in low leverage.
For example, if a firm raises capital by issuing bonds or borrowing from a bank, it is using debt financing, which increases leverage. On the other hand, if a firm raises capital by issuing new shares of stock, it is using equity financing, which decreases leverage.