Which indicator reflects an entity's level of debt?

The leverage ratio is a key indicator that reflects an entity's level of debt in relation to its equity or assets. It is used to assess the degree to which a company is financing its operations through debt versus wholly owned funds. A high leverage ratio indicates a greater proportion of debt in relation to equity, suggesting higher financial risk, while a lower ratio implies less risk as the company relies more on equity financing.

In the context of financial analysis, leverage ratios can provide insight into the capital structure of a company and help stakeholders understand the potential risks and returns associated with its use of debt. Common examples include the debt-to-equity ratio and the debt-to-assets ratio, both of which allow for a comprehensive assessment of how much debt a company has compared to its equity or total assets.

Other ratios mentioned, such as liquidity ratios, profitability ratios, and debt coverage ratios, serve different purposes. Liquidity ratios measure a company's ability to meet short-term obligations, profitability ratios evaluate overall profit generation relative to revenue or equity, and debt coverage ratios examine a company's ability to repay its debt based on cash flow. While these ratios are important for assessing financial health, they do not specifically elucidate the level of debt in the way leverage ratios do.