The interest coverage ratio is computed by dividing:
A) Profit by interest expense.
B) Operating profit by interest expense.
C) Interest expense by profit.
D) Interest expense by operating profit.

Question

Quizplus · Accepted Answer

The interest coverage ratio is computed by dividing the operating profit (earnings before interest and taxes) by interest expense. This ratio is used to measure the company's ability to meet its interest obligations. A higher ratio indicates that the company is more capable of covering its interest payments, while a lower ratio indicates that the company may have difficulty meeting its interest obligations. Choice A, C, and D are incorrect because they do not follow the correct calculation for the interest coverage ratio.

The Interest Coverage Ratio Is Computed by Dividing