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Increased debt increases the leverage factor in a company. During normal or boom times, leverage results in exponential profit returns. During recessions, leverage can result in exponential losses, as well. A large debt burden carries risk because of the reaction of leverage to the prevailing economic conditions. Increased debt favors ROE during boom times but hurts ROE during recessions.
Interesting :) :)
there are lot of theories and lot of concepts that can debate on this topic but in simple wording Debt Financing direct effect to ROE. there MM theories applied.
as the level of gearing Increase, the ROE is also increase
Cuz when gearing level will increase than company would be more Risky so on the basis of Risk ...Equity holder more demand or return for the risk ...
in More Discussion: types of debts and ROE could be Discuss..
