ROE= Tax burden X Interest burden X Op Margin X Asst turnover X Leverage

THen why is it written in schweser that an increase in tax burden or interest burden will decrease ROE when as per formula they are directly proportional

The problem is the misinterpretation of the terms “tax burden” and “interest burden”. Schweser is interpreting them in a manner that is consistent with the language: more interest burden means lower earnings _ after interest _; more tax burden means lower earnings _ after taxes _. Unfortunately for Schweser, the terms “tax burden” and “interest burden” don’t mean what the language suggests: tax burden isn’t the amount of taxes; it’s the percentage left after taxes; interest burden isn’t the amount of interest; it’s the percentage left after interest.

Schweser seems to be saying that an increase in the tax burden means a decrease in the _tax burden ratio _ (NI/EBT) and an increase in the interest burden means a decrease in the _interest burden ratio _ (EBT/EBIT).

I don’t have a copy of the CFA Institute books at hand, but I’d suggest looking in the FRA volume to see how they define the terms tax burden, tax burden ratio, interest burden, and interest burden ratio.