DECA Retail Merchandising Practice Exam

The selected metric, which is the total liabilities to stockholders' equity, is a critical indicator used to assess a company's financial leverage. This ratio provides insight into how much of the company's financing comes from debt compared to equity. A higher ratio signifies that a larger portion of the company's financing is sourced from liabilities, indicating greater financial risk and leverage.

This ratio illustrates the balance between the debt a company owes and the equity that its shareholders have invested. It's important for stakeholders, including investors and creditors, to understand this balance, as it reflects the company's ability to handle its debt obligations in the context of its equity base.

While the debt-to-equity ratio also addresses financial leverage and measures the proportion of debt to equity, the total liabilities to stockholders' equity ratio provides a more comprehensive view of all liabilities instead of just debt. This distinction makes the total liabilities to stockholders' equity ratio a more encompassing measure of financial leverage.

The other metrics listed, such as the net profit margin and the current ratio, serve different purposes. The net profit margin assesses profitability relative to sales, while the current ratio evaluates a company's short-term liquidity and its ability to cover short-term obligations with current assets. Neither of these metrics directly measures leverage or the relationship between debt and