Leverage Reference: Debt, Equity, and ROE Traps
Recall leverage checks that prevent ROE and equity misreads.
Operating ROE improvement or leverage-driven ROE improvement? DuPont separates the sources. “Debt is cheaper than equity, so more leverage is always good.” Your line Only if asset returns exceed borrowing costs and maturities stay manageable under stress. Ignoring downside amplification. It adds return threshold and timing. What does the equity multiplier show? Average assets divided by average equity; higher means more assets supported by less equity. It is the balance-sheet leverage driver in DuPont. “Buybacks improved ROE, so performance improved.” ROE improved, but separate operational gains from a smaller equity base. Confusing denominator management with operating performance. It protects against…
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