A high debt-equity ratio generally indicates:

The debt-equity ratio is a financial leverage ratio that compares a company's total liabilities to its shareholder equity. It indicates how much debt a company is using to finance its assets relative to the value of shareholders' equity. A high debt-equity ratio generally indicates high financial risk because it means the company relies heavily on borrowed funds. This increases fixed interest payment obligations, making the company more vulnerable to financial distress or even bankruptcy if its earnings decline or interest rates rise. Higher debt amplifies both returns and losses for equity holders, a concept known as financial leverage.

• A: Low financial leverage is incorrect. A high debt-equity ratio signifies high financial leverage, as debt magnifies the impact of changes in operating income on earnings per share.
• C: High liquidity is incorrect. High debt obligations can actually strain a company's liquidity, as significant cash flows are required for debt servicing.
• D: Low operating risk is incorrect. Operating risk relates to the variability of a company's operating income due to its core business activities, independent of its financing structure.