Treating debt of financial firm as Source of Capital, why small change in value of firm's asset value causes large change in Equity Value?

It's an example of the concept of leverage. Suppose a $1M company is financed with $900K of debt (90%) and $100K of equity (10%). Then say the company's net assets increases by 5% (5% of $1M is $50K) due to normal operations (net profit). Since debt is unchanged at this point, that means that the company's equity (assets - liabilities) goes from $100K to $150K, or a *** 50% increase ***. Because the firm is financed 90% with debt, it has a leverage of 10X, meaning that for every 1$ change in assets, equity changes by 10%, so a 5% change in assets results in a 50% change in equity.

But leverage works both ways - a loss would result in a drastic drop in equity. If the company lost 10%, reducing assets by $100M, all of its equity would be wiped out due to the leverage.