Financial Ratios Jan was in a big hurry.She had just been given the assignment of reporting on the financial health of her company to the new divisional vice president.Donna, the new vice president, had asked Jan to work up several calculations to help her gain an understanding of the company's financial shape.Jan was working hard and had a big order to fill, one that could make or break her reputation with Donna.She quickly pulled out her old financial management textbook and turned to the chapter on financial ratios to help her answer the questions that were asked.
-Refer to Financial Ratios (Scenario).Donna was also very interested in examining the organisation's use of debt to finance its assets.Jan needed to calculate a(n)________ ratio.
A)leverage
B)activity
C)profitability
D)equity
E)financial

Question

Quizplus · Accepted Answer

The leverage ratio, also known as the debt-to-equity ratio, measures the amount of debt that a company uses to finance its assets compared to its equity. This ratio is a good indication of how much risk a company is taking on by using debt to finance its operations. Therefore, Jan should calculate the leverage ratio to help Donna understand the company's use of debt.

Financial Ratios Jan Was in a Big Hurry