A company with a low debt to equity ratio is in a more vulnerable position during poor economic times than a company with a high debt to equity ratio.

Question

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A company with a low debt to equity ratio has less debt and more equity in the balance sheet, which indicates a lower level of financial risk. During poor economic times, such companies can better sustain the pressures as they have less debt burden to pay. On the other hand, a company with a high debt to equity ratio has more debt than equity, which raises the risk for the company in case of adverse economic conditions. Therefore, such a company is more vulnerable to economic downturns.

A Company with a Low Debt to Equity Ratio Is