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If Joes FishShack has a equity of 0.3 and the average in the market is 0.8...

If Joes FishShack has a equity of 0.3 and the average in the market is 0.8 what does that mean for Joes FishShack?

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Answer #1

This means that Joes FishShack has 0.3 of its requirements being met with equity i.e shareholders' funds and rest 0.7 is being met through Debt. The Debt. is being used is too high and is only done when company is too aggressive and uses Debt. to raise funds and fund its projects. Joes Fish Shack is highly leveraged company. There is a greater risk with the operations of the company as the Debt. is higher.

Whereas, others in the industry have lower amount of debt. as compared to equity.

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