The interest coverage ratio is calculated as:

A) debt to total assets
B) interest expense to total assets
C) interest expense to total debt
D) operating profit before interest to interest expenst

Question

The interest coverage ratio is calculated as:

A) debt to total assets
B) interest expense to total assets
C) interest expense to total debt
D) operating profit before interest to interest expenst

Quizplus · Accepted Answer

Interest coverage is designed to give an indication of how many times the interest on debt has been earned.The ratio indicates how sustainable the firm is,given the relativity between its operating profits and interest charges.A computation of one minus the reciprocal of the interest coverage ratio indicates how far earnings can decline and still pay the interest due.The interest coverage is given by: interest coverage = operating profit before interest and taxes/interest expense.

The Interest Coverage Ratio Is Calculated As