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Unformatted text preview: If I can borrow at 5% and have a return on assets of 7%, earning 2% due to leverage As long on ROA is greater than ROD (return on debt) I am having positive leverage and my ROE is going up. spread The amount of debt to equity also plays a role in the profitability of the company as one takes more debt the spread decreases If your operating income drops the interest payments can swamp your business leverage is a double edged sword Stability of cash flow is more important than average cash flow because it allows u to push up your leverage More assets mean more depreciation which means more free cash flow...
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This note was uploaded on 02/29/2012 for the course BADM 3501 taught by Professor Geurts during the Fall '12 term at GWU.
- Fall '12