The ratios that measure the degree of risk associated with borrowing money from outsiders to finance the business are the:
A) liquidity ratios.
B) investment ratios.
C) efficiency ratios.
D) gearing ratios.

Question

Quizplus · Accepted Answer

Gearing ratios, also known as leverage ratios, reflect the amount of debt a company has relative to its total assets or equity. This indicates how much risk the company has taken on through borrowing, as higher levels of debt mean higher interest payments and potential financial strain. Therefore, the answer is gearing ratios.

The Ratios That Measure the Degree of Risk Associated with Borrowing