Which ratio would you use to measure the financial health of a firm by assessing that firm's leverage?
A) debt-equity or equity multiplier ratio
B) market-to-book ratio
C) market debt-equity ratio
D) current or quick ratio

Question

Quizplus · Accepted Answer

The debt-equity ratio or equity multiplier ratio are the best choices to measure a firm's financial health by assessing its leverage. These ratios show the proportion of debt and equity in a company's capital structure and indicate the degree of financial risk faced by the firm. A higher ratio suggests that the company has a higher proportion of debt to equity, which may affect its ability to meet its financial obligations and indicate a higher risk of default. Thus, a lower debt-equity ratio is desirable as it indicates a lower financial risk and a healthy balance sheet.

Which Ratio Would You Use to Measure the Financial Health