Aerospace and defense sector ROE finance currently holds at 14.3%, with 2024 defense budgets on the rise. Forward guidance suggests possible climbs to 15% as order backlogs grow. It's worth noting the high use of debt by Installed Building Products, leading to its debt to equity ratio of 1.32. There's no doubt the ROE is impressive, but it's worth keeping in mind that the metric could have been lower if the company were to reduce its debt. Debt increases risk and reduces options for the company in the future, so you generally want to see some good returns from using it. Companies usually need to invest money to grow their profits. The cash for investment can come from prior year profits (retained earnings), issuing new shares, or borrowing. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the use of debt will improve the returns, but will not change the equity. That will make the ROE look better than if no debt was used. High-yield corporate bonds are indirectly boosting ROE finance for leveraged companies, with some reaching 21% on strategic debt management. Analysts warn volatility in credit markets could temper this in Q3.
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