Question

An increase in financial leverage generally results in a higher return on equity (ROE)

True or False?

Answer 1

The statement is: True.

Step-by-step explanation:

According to the DuPont analysis, three factors are influencing the increase of the Return On Equity (ROE): the efficiency of operations, the efficiency of the company's assets, and the financial leverage. The DuPont analysis studies those three factors and how they help the ROE to increase or decrease.