What does a high debt-to-equity ratio indicate? What are the reasons for the high debt-to-equity ratio?

  The asset-liability ratio, also known as the debt-to-operate ratio, is an indicator used to measure the ability of an enterprise to use the funds provided by creditors to conduct business activities, and to reflect the safety of creditors' loans. This article focuses on introducing to you what a high asset-liability ratio indicates and the reasons for a high asset-liability ratio.

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  What is the asset-liability ratio?

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  The asset-liability ratio, also known as the debt-to-operate ratio, is an indicator used to measure the ability of an enterprise to use the funds provided by creditors to carry out business activities and to reflect the safety of creditors' loans. It is obtained by comparing the total liabilities of the enterprise with the total assets. It is reflected in the total assets of the enterprise as a debt ratio.

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  is the percentage of total liabilities divided by total assets at the end of the period, that is, the proportional relationship between total liabilities and total assets. The asset-liability ratio reflects how much of the total assets is financed by borrowing and can also measure the extent to which a company protects the interests of creditors during liquidation. The debt-to-equity ratio is an indicator that reflects the ratio of the capital provided by creditors to the total capital, also known as the debt-to-operate ratio. Debt ratio = total liabilities/total assets.

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  Indicates how much of the company's total assets is raised through liabilities, and this indicator is a comprehensive indicator for evaluating the company's debt level. It is also an indicator to measure the company's ability to use creditor funds to conduct business activities, and it also reflects the security level of creditors' loans.

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  If the asset-liability ratio reaches 100% or more, it means that the company has no net assets or is insolvent.

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  What does a high asset-liability ratio indicate?

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  A high asset-liability ratio indicates that among the resource sources of an enterprise, there are more resources from debt and less from owners.

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  The asset-liability ratio is high and the financial risk is relatively high, which may lead to the failure of the resource chain when the cash flow is insufficient, and the debt cannot be repaid in time, thus leading to the bankruptcy of the enterprise. A high asset-liability ratio will increase the cost of further cooperation. Whether it is a bank or a partner, there are certain requirements for the asset-liability ratio.

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  However, a certain asset-liability ratio can allow companies to use debt leverage to improve the returns of corporate shareholders when the interest rate is lower than the cooperative yield. If the asset-liability ratio is high, it is mainly caused by the increase in payables, etc., and this increase does not lead to the loss of corporate reputation and market position, which can increase the effectiveness of corporate cash utilization.

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  What are the reasons for the high asset-liability ratio?

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  The reason for the high asset-liability ratio is often that the company's total liabilities are too high or the total assets are too small. These two factors determine the real interest rate of the asset-liability ratio. A relatively high asset-liability ratio is often driven by shareholders or operators. A company with good quality and a high asset-liability ratio is the reason for expanding operations. If a company has poor quality, then a high asset-liability ratio means there is a financial risk, and the company may go bankrupt.

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  It is generally believed that the appropriate level of asset-liability ratio is 40-60%, and the asset-liability ratio of 70% is called the warning line. When the asset-liability ratio reaches 100% or exceeds 100%, it means that the company has no net assets or is insolvent. The asset-liability ratio is an important indicator to measure the level of debt and risk of an enterprise. The asset-liability ratio can reveal how much of the company's total funding sources are provided by creditors. Therefore, the development of an enterprise can often be achieved without a debt repayment crisis. , as much as possible, so that a larger business scope can be raised with limited funds.

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  Therefore, for the reasons for the high asset-liability ratio, our main analysis method is to judge whether the company is currently in an expansion stage or a contraction stage, and then strip out the largest variable.

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  Regarding the issue of asset-liability ratio, this article introduces what a high asset-liability ratio indicates, and the reasons for a high asset-liability ratio. Simply put, a high asset-liability ratio indicates a relatively high financial risk! As for why the asset-liability ratio is high, it is necessary to analyze the specific reasons. For investors, we should also pay more attention to the operating conditions of target companies and adjust investment strategies in a timely manner.