Question

All of the following are financial leverage ratios except the

A. current ratio.

B. cash coverage ratio.

C. total debt ratio.

D. times interest earned ratio.

E. equity multiplier.

Answer 1

Hi,

Financial leverage ratio can be described as how a firm is using its borrowed money to business.

SO anywhere if a debt or interest on the debt comes, that means it is a financial leverage ratio.

So in the question

current ratio = current asset/current liabilities (it is a liquidity ratio)

cash converge ratio= (EBIT+non cash expense)/interest expense

total debt ratio = debt/asset

times interest earned ratio = EBIT/interest

equity multiplier = asset/equity (measure of financial leverage)

As we can see that apart from "current ratio", each ratio gives indication of company's debt or paying interest indication hence, current ratio is the answer here.

Hence option A is correct here.

Thanks