The greater the variability of sales the higher the earnings coverage ratios should ideally be, all other things equal.

Question

Quizplus · Accepted Answer

This statement is true because when there is greater variability in sales, there is a higher risk of fluctuations in revenue. Therefore, to ensure that the company can cover its fixed costs and interest payments, it should have higher earnings coverage ratios. This provides a cushion against potential losses or a decrease in revenue.

The Greater the Variability of Sales the Higher the Earnings