<p>When a company is in near-bankrupt state, it's equity <span class="math-container">$\rightarrow0$</span>, meaning that D/E goes <span class="math-container">$\rightarrow\infty$</span>. Including such observations would make the resulting mean D/E meaningless. This is why boundaries are needed</p>

CC BY-SA 4.0
2021-04-17T23:33:16.113Z
2021-04-17T23:33:16.113Z
kandi
<p>Is there any economic reason that debt/equity is limited to between 0 and 9 as in the picture below?</p>
<p><a href="https://i.sstatic.net/dHKVk.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/dHKVk.png" alt="enter image description here" /></a></p>
<p>This research examines the impact of the law on firms' financial flexibilities.</p>

CC BY-SA 4.0
2021-04-15T23:03:19.997Z
May be the author wanted to discard outliers before calculating the mean.
H2ONaCl
<debt>
Why debt/equity ratio is limited to between 0 and 9
Phil Nguyen
# Why debt/equity ratio is limited to between 0 and 9

(Asked by: username_0 on 2021-04-15)

Is there any economic reason that debt/equity is limited to between 0 and 9 as in the picture below?

[![enter image description here](https://i.sstatic.net/dHKVk.png)](https://i.sstatic.net/dHKVk.png)

This research examines the impact of the law on firms' financial flexibilities.

**Tags:** debt

> **Comments:**
> **username_1**: May be the author wanted to discard outliers before calculating the mean.  

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## 1 answers

### Answer by username_2 on 2021-04-17. Score: 2 | Accepted answer

When a company is in near-bankrupt state, it's equity $\rightarrow0$, meaning that D/E goes $\rightarrow\infty$. Including such observations would make the resulting mean D/E meaningless. This is why boundaries are needed


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