Question

    Which of the following best describes the Interest

    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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