Kidra Rao ranks and classifies firms into ten groups based on their interest coverage ratios, lowest to highest. Rao's ranking system is best described as:
Rao uses an ordinal scale. A nominal scale places data in groups but with no meaningful ranking content. An ordinal scale groups data according to a characteristic that can be ordered, such as grouping stocks based on their rates of return. Ratio scales are the strongest scale of measurement. Ratio scale amounts can be meaningfully added, subtracted, multiplied, and divided. Rao's ranking does not rise to this level (e.g., a group 4 firm does not necessarily have twice the interest coverage of a group 2 firm).