The correct answer is C. Leverage ratio.
Leverage ratios are used to assess the capital structure and long-term solvency of a firm. They measure the extent to which a firm relies on debt financing. A high leverage ratio indicates that a firm is using a lot of debt to finance its operations. This can be risky, as it means that the firm is more likely to go bankrupt if it is unable to make its debt payments.
There are several different types of leverage ratios, including the debt-to-equity ratio, the debt-to-assets ratio, and the interest coverage ratio. The debt-to-equity ratio measures the amount of debt a firm has relative to its equity. The debt-to-assets ratio measures the amount of debt a firm has relative to its total assets. The interest coverage ratio measures the amount of income a firm has available to cover its interest payments.
Leverage ratios can be used to compare a firm’s capital structure to that of other firms in the same industry. They can also be used to track a firm’s capital structure over time. This information can be helpful for investors and creditors in assessing the risk of investing in or lending money to a firm.
Here is a brief explanation of each of the other options:
- Activity ratios measure how efficiently a firm uses its assets. They include the inventory turnover ratio, the receivables turnover ratio, and the days sales outstanding.
- Profitability ratios measure how profitable a firm is. They include the gross profit margin, the operating profit margin, and the net profit margin.
- Liquidity ratios measure a firm’s ability to meet its short-term obligations. They include the current ratio, the quick ratio, and the cash ratio.