High degree of financial leverage means?

Question: High degree of financial leverage means?

High degree of financial leverage (also known as financial gearing) occurs when a company has a large proportion of debt financing in its capital structure. This means that a relatively small change in profits or cash flow can have a larger effect on the returns for shareholders, as the portion of the profit or cash flow used to service the debt financing is more significant than it would be in a more conservative capital structure. High financial leverage is usually considered to be a riskier financing strategy, as it increases the chances of an insolvency event to occur.

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