When analyzing a company's financial health, which ratio is critical for assessing leverage?

Assessing a company's financial health, particularly its leverage, is effectively done using the debt-to-equity ratio. This ratio measures the proportion of a company's funding that comes from debt compared to equity, giving insight into how much financial risk the company is taking on. A higher debt-to-equity ratio indicates that a company relies more on borrowed funds, which can increase financial risk during periods of downturn.

In contrast, return on assets evaluates how efficiently a company can convert its assets into profits, focusing more on profitability rather than leverage. The current ratio measures a company's ability to pay short-term obligations with its current assets, which is more about liquidity than leverage. Gross profit margin assesses the efficiency of production and the pricing strategy, providing insights into profitability but not directly assessing leverage.

Therefore, the debt-to-equity ratio stands out as the most relevant metric for evaluating the extent of leverage within a company.