What is debt to equity ratio

Good afternoon! So nice to have you here seeking to understand more about finance. Let’s dive right into your questions:

1. What does it mean that 22 listed firms on NGX face debts exposure of #21.3trn?

Imagine you have a provision store in the market where you sell your goods. Now, let’s say you borrowed some money from different people, and the total amount you owe them is ₦21.3trn. That’s a lot of money! In simple terms, these 22 firms listed on the Nigerian Exchange Group (NGX) also owe a huge amount of money, just like you would if you borrowed money for your business.

2. How does it affect the shareholders of those companies?

If the firms owe a lot of money, it means they have significant debts to pay off. When a company has a lot of debt, it can affect the company’s financial health. If the firms struggle to repay these debts, it may impact their profitability, share prices, and even their ability to pay dividends to shareholders. As a shareholder, your investment in the company may be at risk if the company’s financial situation worsens due to these debts.

3. For Mama Ngozi to understand, what is debt to equity ratio?

Alright, Mama Ngozi, let’s break it down. Imagine you have a small farm where you grow tomatoes. Now, let’s say you borrowed some money to buy more land for your farm, and you also invested some of your savings in the farm. The debt to equity ratio is like comparing how much money you borrowed (debt) to how much of your own money you invested (equity) in your farm. It shows the balance between what you owe and what you own in your business.

So, in simple terms, the debt to equity ratio helps us understand how much a company relies on borrowed money compared to its shareholders’ funds. If a company has a high debt to equity ratio, it means they are relying more on borrowed money, which can be risky. On the other hand, a lower ratio indicates the company is using more of its own funds, which can be safer for shareholders like you, Mama Ngozi.

I hope this explanation helps you understand these financial concepts better. Feel free to ask more if you have any other questions!