roe

CFA Level I
#1

I was wondering how does

a) decided to make greater use of long term borrowing capacity

b)implemented a new it system allowing it to reduce working capital levels as a precentage of assets

does these two option have any affcect on ROE Net income/equity or ROA

#2

Additional debt will increase interest income, and therefore decrease EBT, Net income, and ROA (if ROA is defined as NI/Assets - if it is defined as EBIT/Assets, it will have no effect). It’s effect on ROE can vary - it decreases ROA, but increases the Equity Multiplier. In general, adding debt increases ROE if the firm’s pre-levering up ROA exceeds the interest rate on the debt.

#3

thanks