The return of equity will increase. Businesses can finance themselves with debt and equity capital. By aggregating the quantity of debt capital kin to its equity capital, a company can increase its return on equity. The way in which rising financial leverage increases ROE is a little less instinctive. One way to think about it is that if a business adds debt, its assets increase for the reason that its cash inflows from the debt issuance and so does its entire debt.
