Identify the type of ratio that measures the relative risk that a business setback could cause bankruptcy.

Question

Quizplus · Accepted Answer

Leverage ratios measure a company's ability to meet its financial obligations, including debt payments. This type of ratio would give an indication of how much risk a business has of going bankrupt if it experiences a setback, as it looks at the level of debt the company has and how much it can repay. Liquidity ratios measure a company's ability to meet its short-term obligations, while gross margin ratios and profitability ratios focus on the company's ability to generate profits.

Identify the Type of Ratio That Measures the Relative Risk