Leverage ratios
A)show the relative amount of funds in the business supplied by creditors and shareholders.
B)indicate a company's ability to pay short-term debts.
C)indicate management's ability to generate a financial return on sales or investment.
D)show the profit margins for the last six months.
E)indicate the future profits from the current customer base.

Question

Quizplus · Accepted Answer

Leverage ratios, also known as debt ratios, show the extent to which a company relies on debt financing versus equity financing. They provide insight into the relative amount of funds supplied by creditors and shareholders to the business. Examples of leverage ratios include debt-to-equity ratio, debt-to-assets ratio, and interest coverage ratio.

B and C are not correct as they refer to liquidity ratios and profitability ratios, respectively. D and E are also not correct as they do not relate to leverage ratios.

Leverage Ratios