Does increase in financial leverage result in higher return in equity?

Yes, an increase in financial leverage can lead to higher returns on equity (ROE) because it allows a company to use borrowed funds to invest in growth opportunities. When these investments yield returns that exceed the cost of debt, the excess returns boost equity holders' profits. However, higher leverage also increases financial risk, as fixed interest payments must be met regardless of the company's performance, which can lead to adverse outcomes in downturns. Therefore, while leverage can enhance ROE, it also requires careful management of associated risks.