Question

What will a higher debt-equity ratio indicate?

Answer 1

A higher debt-equity ratio shows that a corporation is more leveraged, which means it uses debt to fund its operations rather than stock. This means greater financial risk because the corporation has more responsibilities to meet in terms of interest and principal repayments. While it can result in larger equity returns in good times, it also raises the danger of financial issues or insolvency during periods of low profitability or cash flow problems.