Funds to a company are provided by either shareholders or lenders. Excessive dependence on borrowings is risky. Long term financial soundness of a firm depends on its ability to repay principal and interest on borrowings even during bad times.
Look at the long term solvency of a firm, which can be judged by using leverage or capital structure ratios such as Debt Equity Ratio and Debt Assets Ratio. Long term solvency is important for all bondholders, long term lenders and shareholders.
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