What does a high level of debt-to-equity ratio indicate about a company?

A high level of debt-to-equity ratio indeed indicates that the company may be using excessive financial leverage. This ratio measures the proportion of a company's financing that comes from debt relative to equity. When the debt-to-equity ratio is high, it suggests that the company has taken on a significant amount of debt compared to its shareholder equity.

Excessive financial leverage can imply that the company is relying heavily on borrowed funds to finance its operations and growth, which increases its financial risk. If the company faces downturns in profits or cash flows, it could struggle to meet its debt obligations, potentially leading to financial distress. Investors often view a high debt-to-equity ratio with caution because it can indicate a higher risk profile.

In the context of the other options, a high debt-to-equity ratio does not necessarily mean the company is primarily financed by equity, as a high ratio explicitly indicates that debt is predominant. Additionally, it does not imply a strong asset base; rather, it could signal that assets are financed through debt rather than equity. Lastly, the liquidity of a company, which is its ability to meet short-term obligations, is not directly indicated by the debt-to-equity ratio. Thus, the correct interpretation is that a high ratio suggests