is examining how different levels of debt will affect its debt equity course hero

Why do debt/equity ratios vary by industry?

Why Debt/Equity Ratios Vary. One of the major reasons why D/E ratios vary is the capital-intensive nature of the industry. Capital-intensive industries, such as oil and gas refining or telecommunications, require significant financial resources and large amounts of money to produce goods or services.

Is a high or low debt-to-equity ratio bad?

Extraordinarily high ratios are unattractive to lenders and may make it more difficult to obtain additional financing. A low D/E ratio is sometimes not desirable as it can indicate that a company is not using its assets efficiently.

Does the financial sector have the highest D/E ratios?

The financial sector has one of the highest D/E ratios but this is not indicative of high risk, just the nature of the business. The D/E ratio is a basic metric used to assess a company's financial situation.

What are the most common debt-to-earnings ratios?

D/E ratios higher than 2 are common for financial institutions. Other industries that commonly show a relatively higher ratio are capital-intensive industries, such as the airline industry or large manufacturing companies, which utilize a high level of debt financing as a common practice.

Which industries have a higher debt ratio?

Other industries that commonly show a relatively higher ratio are capital-intensive industries, such as the airline industry or large manufacturing companies, which utilize a high level of debt financing as a common practice.

Why do D/E ratios vary?

One of the major reasons why D/E ratios vary is the capital-intensive nature of the industry. Capital-intensive industries, such as oil and gas refining or telecommunications, require significant financial resources and large amounts of money to produce goods or services.

Why is a high D/E ratio important?

D/E ratios vary across industries because some industries are more capital intensive than others. The financial sector has one of the highest D/E ratios but this is not indicative of high risk, just the nature of the business.

What is a D/E ratio?

The D/E ratio is a basic metric used to assess a company's financial situation. It indicates the relative proportion of equity and debt that a company uses to finance its assets and operations. The ratio reveals the amount of financial leverage a company uses.

Which sector has the highest D/E ratio?

The financial sector overall has one of the highest D/E ratios; however, looked at as a measure of financial risk exposure, this can be misleading. Borrowed money is a bank's stock in trade. Banks borrow large amounts of money to loan out large amounts of money, and they typically operate with a high degree of financial leverage. D/E ratios higher than 2 are common for financial institutions .

Is a ratio of 1 or 2 favorable?

Ratios higher than 2 are generally un favorable, although industry and similar company averages have to be considered in the evaluation. The D/E ratio can also indicate how generally successful ...