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Subject:  Re: Dumb Question Date:  1/31/2003  9:28 AM
Author:  ziggy29 Number:  1616 of 1942

>> Adding debt doesn't reduce equity. It boosts ROE by increasing net income without adding equity capital to do it. <<

In absolute terms, yes, equity doesn't decline just by adding debt. I think what they meant was that equity *as a percentage of working capital* declines...but that does (when profitable) boost ROE. When losing money, though, it can lead to a death spiral.


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