Leverage is a way of looking at how a firm balances its capital. One example is a debt to equity ratio which puts debt in the numerator and equity in the denominator to see how highly "leveraged" a firm is. The higher the debt to equity ratio, the more leveraged the firm. Debt is more risky than equity because it comes with a legal obligation to pay creditors. However, debt is, usually, cheaper than equity. Given the above, if a firm has a high debt to equity ratio, what does that mean about the riskiness of the firm? ROE calculation. Let's think this through... Financial leverage can be increased in two ways: (1) By increasing the amount -or- Financial leverage affects a firm's (2) By decreasing the amount of If a firm increases its financial leverage, what effect might that have on its ROE?