ROE

In calculating the ROE, I am having difficulty going getting the A/E when they give you D/E. In one problem, they said D/E =2 and so they use (D+E)/E= 3 in calculating ROE. I am confused… When I calculate it, I come up with A/E = 1.5. If D/E = 2, then D=1.5E and assuming D+E=A, A=1.5E. Can someone please explain to me where I am going wrong here or how best to think about it? Thanks. I am referring to Schweser Self Test Equity Investments Problem #11 on page 255 if anyone is wondering. Thanks.

so if D/E = 2 that means that it must be 2/1 right? there fore total capital is 2 + 1. if debt =2 and equity = 1 then assets equal 3 and A/E is 3/1

edited

A/E = (D+E)/E = D/E +1

It’s important to realize that the financial leverage ratio is NOT the same as the debt/equity ratio, even if it addresses the same concept (how much debt is in the capital structure). (I messed this up a few times when I was studying for L1 as well). Financial Leverage Ratio is what goes into the Dupont Model. A/E = (D/E+1)

Oh yes! I remember getting confused between these two as well back in the day. bchadwick Wrote: ------------------------------------------------------- > It’s important to realize that the financial > leverage ratio is NOT the same as the debt/equity > ratio, even if it addresses the same concept (how > much debt is in the capital structure). (I messed > this up a few times when I was studying for L1 as > well). > > Financial Leverage Ratio is what goes into the > Dupont Model. A/E = (D/E+1)

wow i totally took the long way haha