What can be understood by a company's increased debt to equity ratio?

The choice indicating that the company is taking on more debt relative to equity is correct because the debt to equity ratio measures the proportion of a company’s funding that comes from debt compared to funding that comes from shareholders' equity. An increased debt to equity ratio indicates that the company is financing a larger share of its operations through debt instead of equity. This can suggest that the company is leveraging more debt to finance growth or operations, which may have implications for its financial risk and return on equity.

When this ratio rises, it illustrates that the company's capital structure is shifting, with a heavier reliance on borrowed funds. It's important to understand that while using more debt can lead to higher returns if the company performs well, it also increases financial risk in periods of downturn. Therefore, this observation provides insight into the company's financial strategy and its approach to leveraging capital for growth or operations.