An increase in the interest coverage ratio indicates primarily that the corporation's
A) solvency has improved.
B) solvency has deteriorated.
C) liquidity has deteriorated.
D) liquidity has improved.

Question

Quizplus · Accepted Answer

The interest coverage ratio measures a company's ability to handle its interest payments on outstanding debt. An increase in this ratio indicates that the company is generating more earnings relative to its interest obligations, suggesting an improvement in solvency. Solvency refers to the ability of a company to meet its long-term obligations.

An Increase in the Interest Coverage Ratio Indicates Primarily That