To determine the ability of a company to pay interest on its debt, you would calculate the:
A)debt ratio.
B)interest coverage ratio.
C)price-earnings ratio.
D)return on assets ratio.

Question

Quizplus · Accepted Answer

The interest coverage ratio is specifically used to determine a company's ability to pay interest on its debt. It measures a company's earnings before interest and taxes (EBIT) against its interest expense for a given period. A higher interest coverage ratio indicates a company is more capable of servicing its debt and paying interest on it.

To Determine the Ability of a Company to Pay Interest