Which of the following ratios indicates a company's financial leverage?

The Debt to EBITDA ratio is a critical measure of a company's financial leverage because it provides insight into the relationship between a company's debt levels and its earnings before interest, taxes, depreciation, and amortization. This ratio effectively shows how much debt a company has in relation to its ability to generate earnings from its operations.

When evaluating a company's financial health, analysts look at this ratio to determine how many years it would take for the company to pay off its debts if it were to use its EBITDA to do so. A higher ratio indicates greater financial leverage, suggesting that the company relies more heavily on borrowed funds to finance its operations. This can imply increased risk, especially if the company faces downturns in earnings or fluctuations in interest rates.

The other options do not directly measure financial leverage in the same way. For instance, ROA (Return on Assets) assesses how effectively a company uses its assets to generate profit, rather than its debt levels. Gross profit margin evaluates the percentage of revenue that exceeds the cost of goods sold but does not provide insight into debt. Debt to total equity illustrates the proportion of debt used relative to shareholders' equity, but it is not as comprehensive as Debt to EBITDA when assessing operational earnings against financial obligations.