What do the leverage ratios calculate?

Question

The proportion of the owner’s contribution and the contribution from creditors
The owner’s contribution to the finance of an organization
The creditors’ contribution to the finance of an organization
None of the above

Answer 1

Leverage ratios primarily measure the proportion of a company's capital that comes from debt compared to equity. Therefore, they calculate the relationship between the owner's contribution (equity) and the contribution from creditors (debt).

Given the options you provided, the most accurate answer would be:

The proportion of the owner’s contribution and the contribution from creditors.

This indicates how much debt is being used in relation to equity in financing the organization's assets.