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Pardon me as the ratio is not in % but in number. As such, the correct amount should be $100 debt to $100 shareholder fund.
debt/equity of 100% means the company is relying on debt over its shareholder value. This can be explained by having $100 debt over only $1 shareholder fund. Its shows that the company is relying on debt to finance its operation which also indicate that the risk is high. By having higher debts, company need to serve higher interest and therefore, lower net profit.
Hopes help.
Im sitting P5 exam June 2017. Hope can pass in one sitting.
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