Role of Debt-to-Equity Ratio in Assessing Financial Leverage

The Debt-to-Equity Ratio is a critical metric for investors, reflecting a company’s financial leverage. It compares the total debt to shareholders' equity, showing how much debt a company uses to finance its operations. A high ratio indicates that a company relies heavily on debt, which can lead to higher risk, especially in economic downturns. Conversely, a low ratio suggests financial stability but may limit growth opportunities. Investors should analyze this ratio in the context of the industry and the company’s growth stage, as it offers insights into the company’s risk profile and long-term financial health.