My Learning Cart
?
Categories
Account

What does a high debt to equity ratio indicate?

₹0.0
Login to Download
  • 📥 Instant PDF Download
  • ♾ Lifetime Access
  • 🛡 Secure & Original Content

What’s inside this PDF?

Question: What does a high debt to equity ratio indicate?

Options:

  1. Low financial risk
  2. High financial risk
  3. High liquidity
  4. Low profitability

Correct Answer: High financial risk

Solution: 

A high debt to equity ratio indicates high financial risk, as it shows that a company is using more debt to finance its operations compared to equity.

What does a high debt to equity ratio indicate?

Practice Questions

Q1
What does a high debt to equity ratio indicate?
  1. Low financial risk
  2. High financial risk
  3. High liquidity
  4. Low profitability

Questions & Step-by-Step Solutions

What does a high debt to equity ratio indicate?
  • 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.
  • Debt to Equity Ratio – A financial metric that compares a company's total liabilities to its shareholder equity, indicating the proportion of debt used to finance the company's assets.
  • Financial Risk – The risk associated with a company's capital structure, particularly the potential for default or bankruptcy due to high levels of debt.
Soulshift Feedback ×

On a scale of 0–10, how likely are you to recommend The Soulshift Academy?

Not likely Very likely
Home Practice Performance eBooks