Financial leverage in business sector profitability: A review

Abstract

This study examines the relationship between financial leverage and corporate profitability in a context of heightened economic uncertainty following the COVID-19 pandemic, a period during which organizations have been compelled to redefine their financing strategies in order to preserve sustainability and financial performance. The primary objective was to systematically analyze recent empirical evidence on the impact of financial leverage on corporate profitability. To this end, a systematic literature review was conducted in accordance with the PRISMA 2020 guidelines, using the Scopus database. The search strategy incorporated terms related to financial leverage, financing, profitability, and firms, while the 2020–2025 period and the explicit inclusion of key topic-related concepts were established as the main eligibility criteria. From an initial total of 7,587 identified records, a rigorous screening process was carried out based on predefined inclusion and exclusion criteria, resulting in the final selection of 36 articles for qualitative analysis. The study employed synthesis matrices, bibliometric analysis, and keyword co-occurrence networks, which made it possible to identify trends, predominant methodological approaches, and the main findings. The results indicate that companies rely on a combination of internal and external financing sources, including bank credit, bond issuance, informal financing, and fintech tools. In general, financial leverage has a positive effect on indicators such as ROA, ROE, and ROI, provided that adequate financial planning, cost control, and efficient debt management are in place. However, in SMEs or firms with high levels of indebtedness and limited managerial capacity, the impact may be negative or statistically insignificant. It is concluded that financial leverage constitutes a strategic tool for enhancing profitability, provided that it is managed prudently and within a comprehensive financial risk management framework.