ECONOMICS

Detailed explanation-1: -Although it varies from industry to industry, a debt-to-equity ratio of around 2 or 2.5 is generally considered good. This ratio tells us that for every dollar invested in the company, about 66 cents come from debt, while the other 33 cents come from the company’s equity.

Detailed explanation-2: -What is ideal debt/equity ratio? The ideal debt to equity ratio is 2:1. This means that at no given point of time should the debt be more than twice the equity because it becomes riskier to pay back and hence there is a fear of bankruptcy.

Detailed explanation-3: -The optimal debt-to-equity ratio will tend to vary widely by industry, but the general consensus is that it should not be above a level of 2.0. While some very large companies in fixed asset-heavy industries (such as mining or manufacturing) may have ratios higher than 2, these are the exception rather than the rule.

Detailed explanation-4: -Answer and Explanation: A big firm that doesn’t have debt in its capital structure doesn’t have an optimal capital structure. An optimal capital structure is one that minimizes a company’s cost of capital and consists of an ideal combination of debt and equity.