Which statement about Return on Equity (ROE) when using debt is true?

The statement that Return on Equity (ROE) will always be higher when using debt is reflective of the principle of financial leverage in accounting and finance. When a company utilizes debt, it is essentially amplifying its asset base with funds borrowed from creditors. This can lead to higher returns on equity under certain conditions, particularly when the return generated by the assets purchased with debt exceeds the cost of that debt.

Using debt allows companies to increase their volume of operations without needing to raise additional equity funds. When the returns on those investments are greater than the interest payments on the debt, the overall profitability increases, thereby boosting ROE. This leverage effect can significantly enhance the returns to shareholders, as the equity base remains unchanged while debt financing can potentially increase earnings.

However, it's important to note that while debt can amplify returns, it also increases financial risk. If the returns on investments made with debt do not exceed the cost of borrowing, or if economic conditions deteriorate, the company may face greater losses or even negative returns, negatively impacting ROE.

The other options do not accurately describe the relationship between ROE and debt. The use of debt does not consistently lower ROE, affect it in a neutral manner, or guarantee a higher ROE, indicating the