A company's debt-to-equity ratio is a critical metric used for what analysis?

The debt-to-equity ratio is a key financial metric that measures the relative proportion of a company's debt and equity used to finance its assets. This ratio is particularly important for capital structure analysis because it provides insight into how a company is funding its operations and growth. By examining the debt-to-equity ratio, investors and analysts can assess the risk and financial stability of the company. A higher ratio typically indicates greater reliance on debt, which may suggest increased financial risk, while a lower ratio suggests a stronger equity position and potentially lower risk for investors.

Capital structure analysis focuses on understanding the combination of debt and equity used by a company, considering how this mix affects overall financial health and cost of capital. This context is crucial for making informed investment decisions and evaluating the company’s long-term sustainability and performance.