GE is highly leveraged.Financial analysts look at its ____ ratio to determine if it can make interest payments.
A) liquidity
B) leverage
C) activity
D) operating
E) coverage

Question

Quizplus · Accepted Answer

The coverage ratio is used to determine whether a company can make its interest payments based on its earnings before interest and taxes (EBIT). This is especially important for highly leveraged companies like GE. The liquidity ratio looks at a company's ability to meet short-term obligations, while the leverage ratio looks at a company's level of debt relative to its equity. The activity ratio looks at a company's efficiency in managing its assets, and the operating ratio looks at a company's operating expenses relative to its revenue.

GE Is Highly Leveraged