Price Printing Co.had sales of $10 million,Operating Income of $3 million; After-tax income of $1 million; assets of $8 million; Stockholders' equity of $5 million; and a total debt of $3 million.If we measure Price's financial leverage we would most likely use which of the following ratios from chapter 8?

Question

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To measure financial leverage, we need to analyze the extent to which the company has used debt financing. Debt-to-equity ratio and debt-to-assets ratio are the two key ratios that represent the financial leverage of a company. Among the given options, option C is the best choice as it includes both debt-to-equity ratio (60%) and debt-to-assets ratio (37.5%). This indicates that the company's total debt is 60% of its equity and 37.5% of its total assets.