Which of the following metrics is essential for assessing financial health?

Debt ratios are vital for assessing the financial health of a municipality because they offer a quantitative measure of the capacity to manage debt compared to the municipality's financial obligations and overall financial condition. These ratios, such as the debt-to-equity ratio or debt-to-total-assets ratio, provide insights into the sustainability of a municipality's debt levels and the associated risks. A lower debt ratio generally suggests that the municipality has a strong financial position, is less leveraged, and can better meet its long-term financial commitments.

While other metrics, such as debt coverage analysis, multi-year revenue forecasts, and annual operational reviews, provide valuable insights into specific aspects of financial management, they do not comprehensively capture the overall financial health in the same way that debt ratios do. Debt ratios encompass a broad overview of a municipality's financial stability and its ability to balance its debt with its revenue-generating capacity, making them a fundamental metric in financial health assessment.