Omnimenium, an automobile company, incurred a debt of $20 million for the fiscal year of 2016. The company used that money with an additional $20 million of its own to buy out a rival company. The ratio of the company's debt to its investment is 0.5. The given scenario illustrates the analysis of _____.
A) liquidity ratios
B) profitability ratios
C) leverage ratios
D) asset management ratios

Question

Quizplus · Accepted Answer

The scenario illustrates leverage ratios, which measure the extent to which a company is using borrowed money (debt) versus its own funds (equity) to finance its investments. The debt to investment ratio of 0.5 indicates the proportion of debt used in the investment.

Omnimenium, an Automobile Company, Incurred a Debt of $20 Million