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    Question

    What does the Interest Coverage Ratio (ICR) measure for

    a company?
    A Dividend payout capacity Correct Answer Incorrect Answer
    B Repayment of principal debt Correct Answer Incorrect Answer
    C Ability to pay interest from earnings Correct Answer Incorrect Answer
    D Short-term liquidity Correct Answer Incorrect Answer
    E Debt-to-equity balance Correct Answer Incorrect Answer

    Solution

    ICR = EBIT ÷ Interest expense. A higher ratio means stronger ability to service interest obligations, lowering default risk.

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