A balance sheet is a financial statement that summarizes a company's assets (what the company owns), its liabilities (what it owes), and the owners' equity (how much of the company they own). Debt financing affects this balance by decreasing how much of the business the owners have. If more debt is taken on, then there will be larger interest fees paid in order to service that debt in future periods. Interest expense in turn decreases net income because more money is going out than is being earned. This decreases total equity which increases leverage ratios such as debt-to-equity ratio or times interest earned ratio (interest coverage ratio). Increasing these ratios increase risk exposure to creditors so this would not be an optimal move for most companies.