The interest coverage ratio reflects the cushion between operating profit inflows and required interest payments.

Question

Quizplus · Accepted Answer

The interest coverage ratio measures the ability of a company to pay interest expenses out of its operating profit or earnings. A higher interest coverage ratio indicates that the company has a larger cushion to cover its interest expenses, while a lower ratio indicates a higher risk of default on interest payments. Therefore, the statement that the interest coverage ratio reflects the cushion between operating profit inflows and required interest payments is true.

The Interest Coverage Ratio Reflects the Cushion Between Operating Profit