With regard to the interest coverage ratio,which of the following is the most accurate?
A)If near-term bankruptcy is an issue,EBITDA can be used to measure survival only over the short term.
B)EBITDA should be used to measure survival over both the short and the long term.
C)EBITA should be used to measure survival only in the short term (vs.long term).
D)None of the above are true.

Question

Quizplus · Accepted Answer

If near-term bankruptcy is an issue, EBITDA can be used to meet interest obligations, and maintenance capital will consequently fall to zero. Unless the company plans to wind down operations, depreciation must eventually be reinvested to maintain operations. Therefore, EBITDA can be used to measure survival only over the short term. Over the long term, EBITA is a better ratio.

With Regard to the Interest Coverage Ratio,which of the Following