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Professor I am unable to get this disadvantage of ROE
“it is sensitive to gearing levels – ROE will increase as gearing ratio increases.”I am unable to figure connection.
If gearing will increase so finance costs will increase, ultimately, causing drop in Profit Attributable to shareholders. This should decrease ROE so how it is saying increase in gearing increases ROE.I do not have the Kaplan text and I do not know the context in which they have written it.
From memory the exam has never asked about disadvantages of ROE – certainly not in the last 15 years!
My lectures cover everything needed to be able to pass the exam well (and if you are watching the lectures you do not really need the Study Text. It is the Exam Kit that is essential, however you choose to study.)
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