This Debt To Equity Ratio
This Debt To Equity Ratio shows managers and shareholders of the company where the funding comes. To stay in the previous case, a higher ratio of one means that the company is financed by debt. A ratio below one means that the company is financed by equity rather than debt. Based on the overall financial situation of the company, the two reports can be just as unsustainable.
Another factor to consider is the type of industrial companies listed on the business in the capital-intensive industries such as automobile manufacturers generally have high debt equity ratio for the simple fact that companies need to get a lot of material before it can take a car. Since the manufacture of motor vehicles are the main source of revenue, the company is financed by a debt owing to the need. Companies should take on debt in order to obtain funds, in turn, to buy raw materials needed to produce cars. In other industries, it is ridiculous to use a higher ratio of debt to equity. The company that makes personal computers, for example, typically have a debt ratio of 0.5 or less. This is because it almost does not cost much to make the car as it does to make a computer.
