From a cash flow position,which one of the following ratios best measures a firm's ability to pay the interest on its debts?
A) times interest earned ratio
B) cash coverage ratio
C) cash ratio
D) quick ratio
E) Interval measure

Question

Quizplus · Accepted Answer

The cash coverage ratio measures a firm's ability to make interest payments by dividing its operating cash flow by its total interest payments. This provides a more accurate measure of a firm's ability to pay interest than the times interest earned ratio, which only looks at earnings before interest and taxes. The cash ratio and quick ratio measure a firm's liquidity, while the interval measure looks at a firm's ability to cover its operating expenses with its current assets.

From a Cash Flow Position,which One of the Following Ratios