The interest coverage ratio:
A)Is computed by dividing total liabilities by annual interest expense.
B)Is computed by dividing liquid assets by annual required interest payment.
C)Indicates the percentage of total assets that are financed with borrowed money.
D)Measures the number of times the annual interest expense could be covered by annual income from operations.

Question

Quizplus · Accepted Answer

The interest coverage ratio measures the number of times the annual interest expense can be covered by annual income from operations. This information is important to lenders and investors because it indicates the company's ability to meet its interest obligations. A higher ratio signifies that the company is more capable of paying its interest expenses.

The Interest Coverage Ratio