Which of the following best describes the Interest

Q: Answer-Which of the following best describes the Interest Coverage Ratio (ICR)?

The Interest Coverage Ratio ICR measures how easily a company can pay interest on its outstanding debt using its earnings before interest and taxes EBIT. A higher ratio indicates stronger debt servicing ability, while a ratio below 1 signals that the company is not generating enough earnings to cover its interest obligations.

Coverage Ratio (ICR)?

A Current Assets / Current Liabilities Correct Answer Incorrect Answer

B Net Profit / Net Sales Correct Answer Incorrect Answer

C EBIT / Interest Expense Correct Answer Incorrect Answer

D Gross Profit / Total Assets Correct Answer Incorrect Answer

E Total Debt / Shareholders' Equity Correct Answer Incorrect Answer

Solution

The Interest Coverage Ratio (ICR) measures how easily a company can pay interest on its outstanding debt using its earnings before interest and taxes (EBIT). A higher ratio indicates stronger debt servicing ability, while a ratio below 1 signals that the company is not generating enough earnings to cover its interest obligations.

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SIDBI Grade A (Assistant Manager)

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