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      Question

      The primary purpose of calculating the 'Interest

      Coverage Ratio' is to assess a company's ability to pay:
      A Its long-term debt Correct Answer Incorrect Answer
      B Its dividend obligations Correct Answer Incorrect Answer
      C Its interest expenses from its earnings Correct Answer Incorrect Answer
      D Its tax liabilities Correct Answer Incorrect Answer
      E Its accounts payable Correct Answer Incorrect Answer

      Solution

      The Interest Coverage Ratio (EBIT / Interest Expense) measures how easily a company can pay interest on its outstanding debt from its operating earnings. A higher ratio indicates a greater ability to meet interest obligations.

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