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    Question

    If a firm’s interest coverage ratio falls from 6x to

    2x over a year, it indicates:
    A Improvement in profitability Correct Answer Incorrect Answer
    B Better solvency Correct Answer Incorrect Answer
    C Weakening ability to service debt Correct Answer Incorrect Answer
    D Lower tax burden Correct Answer Incorrect Answer

    Solution

    Interest coverage ratio = EBIT / Interest; fall implies strain in interest-paying capacity, increasing financial risk.

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