A high debt ratio can be favorable because higher leverage may result in a higher return on equity.

Question

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A higher debt ratio means that the company has more debt compared to its equity. This can result in higher interest payments and financial risk, but it can also lead to a higher return on equity if the company is able to generate enough profits to cover its interest payments and earn a return on the funds borrowed. However, a high debt ratio also increases the likelihood of default and financial distress if the company faces unexpected challenges or downturns.

A High Debt Ratio Can Be Favorable Because Higher Leverage