The interest coverage ratio measures the firm's ability to meet its interest obligation.

Question

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The interest coverage ratio is a financial metric used to evaluate a company's ability to pay interest expenses on its outstanding debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses. A higher interest coverage ratio indicates that a company is generating sufficient earnings to cover its interest expenses, while a lower ratio suggests that a company may have difficulty meeting its interest obligations. Therefore, the statement is true.

The Interest Coverage Ratio Measures the Firm's Ability to Meet