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Return on Equity Components




                                                            ROE
   ROA
         Interest
           Rate                          1. Interest Rate
                                2. ROA


                                         3. Debt

                    4. Assets
@reshwallaja
ROE: Lower Interest Amplifies ROE




                                       ROE


   ROA

         Interest
           Rate


                             Debt

                    Assets
@reshwallaja
ROE : Easy Availability of Capital
   Businesses increase debt exposure


                                        ROE




   ROA

         Interest
           Rate


                                 Debt

                    Assets
@reshwallaja
ROE: When Interests Rates Go Up
   The Same Operational Efficiency Will Yield Rather Unattractive Results




      Interest
        Rate

   ROA



                                                                    ROE

                                             Debt

                    Assets
@reshwallaja
ROE: When Interests Rates Go Up…
   Businesses with high debt will be “stressed”




      Interest
        Rate

   ROA




                                             ROE

                              Debt

                 Assets
@reshwallaja
ROE: Lower Interest Amplifies ROE




                                       ROE

   ROA


         Interest
           Rate


                             Debt

                    Assets
@reshwallaja

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How Interest Rates and Debt Impact Return on Equity (ROE

  • 1. Return on Equity Components ROE ROA Interest Rate 1. Interest Rate 2. ROA 3. Debt 4. Assets @reshwallaja
  • 2. ROE: Lower Interest Amplifies ROE ROE ROA Interest Rate Debt Assets @reshwallaja
  • 3. ROE : Easy Availability of Capital Businesses increase debt exposure ROE ROA Interest Rate Debt Assets @reshwallaja
  • 4. ROE: When Interests Rates Go Up The Same Operational Efficiency Will Yield Rather Unattractive Results Interest Rate ROA ROE Debt Assets @reshwallaja
  • 5. ROE: When Interests Rates Go Up… Businesses with high debt will be “stressed” Interest Rate ROA ROE Debt Assets @reshwallaja
  • 6. ROE: Lower Interest Amplifies ROE ROE ROA Interest Rate Debt Assets @reshwallaja