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      Question

      A high Debt-Equity Ratio

      indicates:
      A Low financial risk Correct Answer Incorrect Answer
      B High operational efficiency Correct Answer Incorrect Answer
      C High reliance on external debt Correct Answer Incorrect Answer
      D Strong liquidity position Correct Answer Incorrect Answer
      E Low cost of capital Correct Answer Incorrect Answer

      Solution

      The Debt-Equity Ratio (Total Debt / Total Equity) measures a company's financial leverage. A high ratio indicates that the company is aggressively funding its growth with debt, which can be risky because debt must be repaid with interest regardless of business performance, increasing financial risk (contrary to A).

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