The difference between a venture's ability to generate cash to pay interest and the amount of interest it has to pay is determined by which of the following ratios?
A)fixed-charges coverage
B)debt-to-equity ratio
C)equity multiplier
D)interest coverage

Question

Quizplus · Accepted Answer

The interest coverage ratio measures a company's ability to pay its interest expenses on its outstanding debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses. A higher ratio indicates that the company is more capable of paying off its interest expenses, while a lower ratio may be a sign of financial distress. Therefore, the difference between a venture's ability to generate cash to pay interest and the amount of interest it has to pay is determined by the interest coverage ratio.

The Difference Between a Venture's Ability to Generate Cash to Pay