Other things being equal, the higher the debt to equity ratio, the higher the risk of bankruptcy.Group startsTrue or False

Answer

True.

A high debt to equity ratio indicates that a company is financing a larger proportion of its operations through debt compared to equity. This reliance on debt can lead to greater financial risk because debt obligations require regular repayments regardless of the company's cash flow. In challenging economic times, companies with higher debt levels may struggle to meet these obligations, increasing the risk of bankruptcy.

Moreover, a higher ratio may indicate that a company is leveraging itself more aggressively, subjecting it to the volatility of interest rates and market conditions. Consequently, all other factors being equal, a higher debt to equity ratio typically signifies elevated financial risk and a greater likelihood of bankruptcy.