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One criticism of the interest and fixed charges coverage ratios as measures of long-term solvency risk is that they use earnings rather than cash flows in the numerator.Detail how the interest coverage ratio and fixed charges coverage ratio are calculated.In addition,discuss why using earnings in the numerator is a problem and what method could be used to alleviate this problem.
Elastic Demand
A situation where the quantity demanded of a good or service significantly changes in response to a change in its price.
Short Run
A period in economic theory during which at least one factor of production is considered fixed and cannot be changed.
Resource Suppliers
Entities or individuals that provide the necessary inputs (like raw materials, labor, and capital) for production processes.
Marginal Product
The additional output resulting from the use of one more unit of a production input.
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