Describe your familiarity with debt-to-equity ratios. What would you consider a good debt-to-equity ratio?
Pay attention to Prudential's 5 Key Fundamentals: Support business growth strategies and initiatives. Enable the development and launch of new products through the evaluation of risk and volatility considerations. Support key growth initiatives in the U.S. and internationally; develop the business case and perform price evaluations for new growth initiatives. Shift toward Agile development and more efficient business processes to increase speed to market. Further execution of Magellan transactions to support capital and growth initiatives.
"Simply put, the debt-to-equity ratio is found on a company's balance sheet with two simple figures - their total liabilities and shareholder equity. Financial and banking industries often have to consider debt-to-equity ratios higher than 2.0 common and acceptable because of the large amounts of loaned money and high financial leverage by those institutions. Ratios lower than 1.0 are desirable and considered firm and financially stable. Any time I've worked with ratios exceeding 1.0, I've surveyed the organization to determine their overall risk and hopefully provide a win-win situation."
This question tests your basic understanding of calculating a debt-to-equity ratio, why it's used, and the ratio's importance for debt financing. Share your familiarity across multiple industries and the ratio for each industry. Go deeper by sharing your observations on what is considered reasonable across industries.
