The chapter describes many different ratios. One is ROE or Return on Equity. This is an important ratio to stockholders. Normally a high ROE is an indicator that firm is performing well. The formula for ROE is net income/shareholder's equity. Net income is from the income statement and shareholders equity is from the balance sheet . An example is assume that Peterson Company generates a net income last year of $5 million dollars. Shareholder's equity on balance sheet equals $10 million dollars for last year. Using the formula M/$10M = 50% as ROE. This means Peterson Company generates $.50 of profit for every $1 of shareholders equity for last year. The book mentions that a high ROE resulting from a highly leveraged position can be an indicator of a firm with high risk of bankruptcy

What does high leverage mean? The book describes the leverage

Can someone please explian Thanks