Question

Helpful in assessing the risk of lending to investors for particular projects, which of the following calculations measures the income-producing ability of the property to meet operating and financial obligations?
A. Profitability ratios
B. Income multipliers
C. Financial risk ratios
D. Income tax multipliers

Answer 1

Answer:

C. Financial risk ratios

Explanation:

Financial risk ratios are calculated to measure the financial risk of the company. It measure the financial capability of an entity. For lending purpose the lender has to ensure that is the borrower able to repay the borrowed amount and interest on it. The lender need to estimate the capability of the borrower for payment of loan back. These ratio care Debt to capital ratio, Coverage ratio etc.  

Answer 2

Answer:

The income-producing ability of a company is determined by calculating the Profitability ratios.

These ratios calculate the ability of a company to produce income and turn the income into profits and added value for shareholders.  A company can meet operating and financial obligations only if it generates enough income in excess of its expenses.

The bases for calculating profitability ratios are revenue, operating costs, assets, and equity.

Profitability ratios are grouped into two classes: Margin Ratios and Return Ratios.

Explanation:

The Margin Ratios measure the company's ability to turn sales into a profit.  They include Gross Margin Ratio and Net Income Ratio.  They are expressed as a percentage of Sales or Cost of Goods Sold.

Return Ratios measure a firm's ability to add value for shareholders.  They include Return on Assets and Return on Equity, among other variants.