Which two of the following best describe the effect of a fall in profit, assuming there is no change in interest charges?
A) Taxation increases.
B) The risk of liquidation falls.
C) Interest cover will fall.
D) There is an increase in the chance of interest payment defaults.

Question

Quizplus · Accepted Answer

A fall in profit leads to a decrease in the interest cover ratio (C), indicating a company has less earnings to cover its interest expenses, thus increasing the risk of defaulting on interest payments (D).

Which Two of the Following Best Describe the Effect of a Fall