Question

So experts state that a 'good debt to equity ratio is somewhere between 1.5 - 1  to one.  This means for every $1.50 of debt, there should be $1.00 of equity. This is not a golden rule it is a best judgement of experts for an organization to be viable. 

Examples:
Chase bank 1.31 / 1
BOA  1.02 / 1
AMEX  2.66
Remember that debt is the way large organizations are able to invest and grow - the risk though is what accountants are needed for!!! 
how do you respond to this comment?

Answer 1

I do not agree with this comment and risk associated with use of high quantum of debt cannot be managed by accountants. While debt is certainly a cheaper source of finance than equity (due to tax benefits on interest payments) it is also a riskier source of finance at the same time. High debt reduces the degree of protection that is enjoyed by the creditors of a company. It should be noted that use of high debt inhibits a company’s ability to create a cash surplus. Use of high debt also has a negative impact on a company’s shareholders as the shareholders are last in line for claiming payback from a company in case the company becomes insolvent.

Thus while use of debt is good up to a certain limit or extent because of it being a cheaper source of finance use of high levels of debt is not good and is associated with higher risks. These risks cannot be mitigated by accountants once the debt levels cross a certain threshold. Accountants also cannot reduce the ‘agency’ costs that are associated with monitoring of terms and conditions associated with a loan (otherwise known as loan covenants).

Thus while operations managers may prefer to raise debt to grow the company and implement the strategy they should not expect the accountants to deal with the risk of debt because once the debt level goes beyond a certain point the risks associated with it will become unmanageable as pointed above.