What does a high debt-to-equity ratio indicate?

A high debt-to-equity ratio indicates a greater reliance on debt financing. This financial metric compares the amount of a company's total liabilities to its shareholders' equity, showing how much of the company's financing comes from debt relative to equity. When the ratio is high, it suggests that the company is more leveraged, meaning it has taken on a significant amount of debt to finance its operations and growth.

This heavy reliance on debt can imply that the company is using borrowed funds to expand rapidly or fund operations, which can be beneficial in times of strong revenue but also introduces higher risk, especially if cash flow fluctuates or interest rates rise. It reflects a strategy of financing growth through debt rather than generating capital through equity contributions.

In contrast, a lower debt-to-equity ratio would suggest lower reliance on debt and potentially more financial stability, as the company has less obligation to service debt payments. Higher financial stability (as mentioned in one of the options) typically corresponds to a lower ratio. Additionally, while debt financing can sometimes enhance profitability potential, it also carries risks that could impact profitability if not managed properly. Thus, "more reliance on debt financing" is the most accurate interpretation of a high debt-to-equity ratio.