A high debt to equity ratio indicates reliance on creditor ﬁnancing thereby increasing the risk that a company will not be able to meet its obligations.

Question

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A high debt to equity ratio means that a company has more debt relative to equity. This indicates that the company is relying more on creditor financing rather than shareholder financing, which increases the risk that the company may not be able to meet its financial obligations.

A High Debt to Equity Ratio Indicates Reliance on Creditor