Which of the Following Statements About the Interest Coverage Ratio

question 2

Multiple Choice

Which of the following statements about the interest coverage ratio is not true?

• A) The interest coverage ratio is calculated as (earnings before interest and tax)/ (interest expense).
• B) The interest coverage ratio indicates the degree to which commitment to pay interest on debts is covered by the company's ability to generate profit.
• C) A low coverage ratio may be a warning of solvency problems.
• D) A high interest coverage ratio indicates the company is not operating at sufficient profitability levels.

---

Definitions:

General Agreement on Tariffs and Trade

Known as GATT, it's a legal agreement between many countries, aimed at promoting international trade by reducing or eliminating trade barriers such as tariffs and quotas.

Federal Revenue

The income received by the federal government from various sources, such as taxes, fees, and investments.

Domestic Producers

Companies and individuals within a country that produce goods and services for the local market.

Quotas

Quantitative limits set by governments on the amount of specific goods or services that can be imported or exported during a specified time frame.