Which of the following statements about the interest coverage ratio is NOT true?
A) The interest coverage ratio is calculated as (earnings before interest and tax)/ (interest expense).
B) The interest coverage ratio indicates the degree to which commitment to pay interest on debts is covered by the company's ability to generate profit.
C) A low coverage ratio may be a warning of solvency problems.
D) A high interest coverage ratio indicates the company is not operating at sufficient profitability levels.

Question

Quizplus · Accepted Answer

A high interest coverage ratio indicates that the company is generating sufficient profits to cover its interest expenses, which is a positive sign of financial strength. Therefore, statement D is not true as it implies the opposite.

Which of the Following Statements About the Interest Coverage Ratio