What is ideal debt equity ratio

Question

Accepted Answer

The ideal debt equity ratio depends on the industry and company's risk tolerance.

The debt equity ratio measures the proportion of debt and equity used to finance a company's assets.
A lower debt equity ratio indicates a more conservative financial structure, while a higher ratio suggests higher financial risk.
The ideal ratio varies across industries and depends on factors such as stability, growth prospects, and cash flow.
For example, industries with stable cash flows like utilities may have higher debt equity ratios, while high-growth industries like technology may have lower ratios.
Companies with strong credit ratings and stable earnings may have higher debt equity ratios, while riskier companies may opt for lower ratios to reduce financial risk.

Accepted Answer

Ideal debt equity ratio is 2:1 means debt will not more then 2 times of equity

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