Step 1: Understand what 'debt' means. Debt is money that a company borrows and needs to pay back.
Step 2: Understand what 'equity' means. Equity is the money that comes from the owners or shareholders of the company.
Step 3: Learn about the 'debt to equity ratio'. This ratio compares the total debt of a company to its total equity.
Step 4: Know that a 'high' debt to equity ratio means the company has a lot of debt compared to its equity.
Step 5: Realize that having a lot of debt can be risky. If a company has high debt, it may struggle to pay it back, especially if it doesn't make enough money.
Step 6: Conclude that a high debt to equity ratio indicates high financial risk for the company.
