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Which of the following is not a leverage ratio?

1) Debt/Capital
2) FFO/Debt
3) EBIT/Sales
4) None of the above

1 Answer

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Answer:

The EBIT/Sales ratio is a profitability ratio, not a leverage ratio, making it the correct answer to the question. Leverage ratios are intended to assess a company's debt level and its capacity to fulfill its financial commitments.

Step-by-step explanation:

The question given is related to financial ratio analysis within the field of business and finance. Specifically, it concerns leverage ratios, which are financial metrics used to assess a company's level of debt and its ability to meet financial obligations.

The three options presented are:

1) Debt/Capital ratio, which is indeed a leverage ratio as it measures the proportion of a company's capital that comes from debt

2) FFO/Debt, or Funds From Operations to Debt, also a leverage ratio, showing the company's ability to pay off its debt with its operating income

3) EBIT/Sales, which is not a leverage ratio but a profitability ratio often referred to as the operating margin. Hence, the correct answer to the question is '3) EBIT/Sales' as it does not measure leverage but rather the efficiency of a company's operations.

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