MANAGEMENT

Detailed explanation-1: -The debt-to-equity ratio tells a company the amount of risk associated with the way its capital structure is set up and run. The ratio highlights the amount of debt a company is using to run their business and the financial leverage that is available to a company.

Detailed explanation-2: -The term used to represent the proportionate relationship between debt and equity is Capital structure. Because by capital structure we mean to define the mix or proportion in which the capital of the company should be so as to maximize the benefit for the shareholders.

Detailed explanation-3: -A D/E ratio of 2 indicates that the company derives two-thirds of its capital financing from debt and one-third from shareholder equity, so it borrows twice as much funding as it owns (2 debt units for every 1 equity unit).

Detailed explanation-4: -An optimal capital structure is the best mix of debt and equity financing that maximizes a company’s market value while minimizing its cost of capital. Minimizing the weighted average cost of capital (WACC) is one way to optimize for the lowest cost mix of financing.

Detailed explanation-5: -The Debt to Equity ratio (also called the “debt-equity ratio”, “risk ratio”, or “gearing”), is a leverage ratio that calculates the weight of total debt and financial liabilities against total shareholders’ equity.