an ideal level of gearing, a company gains on equity increased due to the use of leverage to increase stocks, increasing the level of risk which in turn increase return. However, if a financial company is too leveraged to a decrease in return on equity can occur. Over-leveraging financial means incurred a large debt a loan at a lower interest rate and use the excess money in high risk investments. If investment risk outweighs the return expected, the value of the equity of the company can decrease when stock owners believe it would be too dangerous
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