Which ratios measure the degree of risk associated with borrowing money from outsiders to finance the business?
A)Liquidity ratios
B)Investment ratios
C)Gearing ratios
D)Efficiency ratios

Question

Quizplus · Accepted Answer

Gearing ratios, also known as leverage ratios, measure the level of debt financing a business has in relation to its equity financing. This indicates the extent to which a business is relying on borrowed funds to finance its operations, which in turn affects the level of risk associated with its borrowing. Therefore, gearing ratios are particularly relevant in assessing the risk associated with borrowing money from outsiders.

Which Ratios Measure the Degree of Risk Associated with Borrowing