Leverage or debt ratios measure the degree to which a firm relies on ______.Multiple choice question.profitabilitytangible assetsowners equityborrowed funds

Identifying the Correct Answer

1. Understanding Leverage Ratios: Leverage ratios, also known as debt ratios, are financial metrics used to assess the degree to which a firm uses borrowed funds to finance its operations and growth.

2. Analyzing the Options:

   • Profitability: This refers to a company’s ability to generate income relative to revenue, assets, or equity. It does not directly measure reliance on debt.
   • Tangible Assets: These are physical assets like machinery, buildings, and land. While assets are part of the financial structure, leverage specifically pertains to how much debt is used.
   • Owners Equity: This represents the ownership interest in the company, which is not the focus of leverage ratios.
   • Borrowed Funds: This directly relates to the concept of leverage, as leverage is primarily about how much debt a company takes on to finance its operations.

Conclusion

Considering that leverage or debt ratios measure the degree to which a firm relies on borrowed funds, the correct answer is: borrowed funds.