Discussion
XYZ Ltd. has a debt-equity ratio of 1.5 as compared to 1.3 Industry average. It means that the firm has :
Answer: B
The firm has higher financial risk.
A debt-equity ratio of 1.5 means the firm uses ₹ 1.50 of debt for every rupee of equity, more than the industry's 1.3. More debt means larger fixed interest and repayment obligations, so the risk of being unable to meet them, financial risk, is higher.
The ratio says nothing directly about liquidity (which is measured by current or quick ratios), profitability or the total size of capital employed.
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