What ratio helps to measure the risk involved in financing a business with borrowed funds?
A)asset turnover ratio.
B)current ratio.
C)interest cover ratio.
D)profit margin ratio.

Question

Quizplus · Accepted Answer

The interest cover ratio measures the ability of a business to pay the interest on its debt with its earnings before interest and taxes (EBIT). A higher interest cover ratio indicates a lower risk of defaulting on debt payments and therefore a lower risk of financing a business with borrowed funds. The other ratios mentioned do not directly measure the risk involved in financing with borrowed funds. The asset turnover ratio measures how efficiently a business is using its assets to generate revenue, the current ratio measures a business's ability to pay its short-term debts with its current assets, and the profit margin ratio measures how much profit a business earns for each dollar of sales.

What Ratio Helps to Measure the Risk Involved in Financing