What does a high debt-to-equity ratio indicate?

A high debt-to-equity ratio indicates that a company is financing a larger portion of its assets with debt. This ratio is a measure of a company's financial leverage and illustrates the relative proportion of shareholders' equity and debt used to finance the company's assets. When the ratio is high, it suggests that the company relies more on borrowing to fuel its operations and growth, which can lead to higher risk if the company faces financial difficulties or fluctuating income, as it needs to meet its debt obligations regardless of its profits.

Understanding this ratio helps investors assess the capital structure of a business. While higher leverage can enhance returns on equity when times are good, it also poses potential risks during downturns, making it crucial for stakeholders to be aware of how much debt the company carries in relation to its equity capital.