the ideal ratio for debt equity
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it is 2:1
if a firm has more debt and less equity
debt carries a fixed charge ie interest which needs to be paid irrespective of profit or loss. if a firm is unable to pay the interest ie what happened in covid times with many industries so the creditors can force them to liquidation by selling their assets to realize their money
if a firm has more of equity then it dilutes it shareholding and control over decision making which may result into hostile mergers and acquisitions
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