From a cash flow position,which one of the following ratios best measures a firm's ability to pay the interest on its debts?
A)Times interest earned ratio
B)Cash coverage ratio
C)Cash ratio
D)Quick ratio
E)Interval measure

Question

Quizplus · Accepted Answer

The cash coverage ratio is the ratio of the company's operating cash flow to the total cash obligations, including interest payments. This measures the company's ability to pay its debts with the cash generated from its own operations. A higher cash coverage ratio indicates a stronger ability to make interest payments. Other ratios such as the times interest earned ratio and the quick ratio do not directly measure the ability to pay interest with cash flows. The cash ratio and interval measure are liquidity ratios and do not reflect the company's ability to pay interest on its debts.

From a Cash Flow Position,which One of the Following Ratios