When you have increased debt it will increase the leverage factor for a company. During normal or prosperous times, leverage results in exponential profit returns. During a recession leverage can result in exponential losses. Since return on equity is (earnings per share) / (book value) it should change by increased use of debt. Debt is leverage and should (if used effectively) increase the earnings a company makes without changing book value. A big debt load carries risk because of the response of leverage to the current economic conditions. An increased debt hurts ROE during a recession and benefits ROE during prosperous . . .
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