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

Question

Quizplus · Accepted Answer

The interest cover ratio is a measure of how easily a company can pay the interest on its outstanding debt. A higher interest cover ratio indicates that the company is able to meet its interest obligations, and is therefore a lower risk for lenders. The other ratios listed (asset turnover, current ratio, profit margin) do not directly measure a company's ability to meet its debt obligations.

The Ratio That Helps to Measure the Risk Involved in Financing