The interest coverage ratio is computed by dividing:
A) Operating profit by annual interest expense.
B) Profit by annual interest expense.
C) Carrying value of bonds by cash interest payments.
D) Earnings per share by the prime interest rate.

Question

Quizplus · Accepted Answer

The interest coverage ratio is a measure of a company's ability to pay its interest expenses from its operating profit. It is calculated by dividing the operating profit by the annual interest expense. This ratio is an indicator of a company's financial health and can help investors determine whether it is able to meet its debt obligations.

The Interest Coverage Ratio Is Computed by Dividing