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Question on ROE

Hi everyone,

In the reading on Financial Analysis Technique they speak about the interest burden and tax burden. For the exam, should the interest burden and tax burden be interpreted as the interest burden ratio and tax burden ratio? I am asking as in one of the question on the CFA online question bank, they ask whether an increase in the interest burden would reduce ROE. My answer was no because I interpreted the interest burden as EBT/EBIT. The higher the interest burden ratio, the higher the ROE, but the higher th interest burden the lower the ROE. Just want to make sure I get this right come exam time.


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Hi cfageist;

You might find a relevant answer by referring to this topic: