Under what situation Earning per share of company falls with the increased use of debt?

Question

KollegeApply · Accepted Answer

When company’s Return on Investment is less than cost of debt. Explanation: • Earnings per Share (EPS) falls when Return on Investment (ROI) is less than the cost of debt because the company pays more interest than it earns on the funds borrowed. • This reduces profitability and hence EPS. If ROI is greater than the cost of debt, the company benefits from financial leverage, and EPS increases.

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