A firm with a low debt ratio relative to the industry norm has a high degree of financial leverage and therefore may have a relatively high risk of default.

Question

Quizplus · Accepted Answer

A low debt ratio indicates that the firm has comparatively less debt and more equity which implies lower financial leverage. This means that the firm is less risky in terms of defaulting on its debt obligations, as it has less debt to pay off.

A Firm with a Low Debt Ratio Relative to the Industry