If a firm has a leverage of 2.9, what can be inferred about its Return on Equity (ROE)?

When a firm has a leverage ratio of 2.9, it indicates that the firm's debt is 2.9 times its equity. Leverage can significantly amplify a company's return on equity (ROE) because it involves using borrowed funds to generate income. The use of debt can enhance returns to shareholders as long as the returns on investments exceed the cost of that debt.

This situation suggests that if the firm is effectively utilizing its leverage (that is, generating returns greater than the cost of leverage), it could lead to a higher ROE in comparison to firms with lower leverage, provided that all other factors, such as operational performance and asset efficiency, are favorable. Thus, a leverage ratio of 2.9 implies the potential for a higher ROE relative to its peers, particularly in a favorable economic environment where the firm is capable of utilizing its debt to generate profits.

High leverage does not guarantee the highest ROE, as it can also lead to increased financial risk; however, in this context, it indicates that the firm has the capacity for significant returns if managed properly, justifying the conclusion that it could be the highest among listed firms.