What does a company with a debt to equity ratio of 1.5 indicate?

A debt to equity ratio of 1.5 indicates that for every dollar of equity, the company has $1.50 in debt. This higher proportion of debt in relation to equity suggests that the company is heavily reliant on borrowing to finance its operations and growth, thus being classified as highly leveraged.

A higher leverage can be a double-edged sword; while it may enhance returns on equity during profitable times, it also increases the financial risk, particularly if the company faces downturns or cash flow issues. Companies with such ratios may find it challenging to secure additional financing, as lenders typically assess the risk associated with a high level of debt.

In contrast, options that suggest the company is primarily financed through equity or has equal financing from debt and equity do not accurately reflect the situation implied by a 1.5 ratio. Similarly, the assertion that a company has no debt financing is entirely incorrect given the stated ratio. Thus, recognizing a debt to equity ratio of 1.5 clearly points to a high level of leverage.