The Interest Coverage Ratio

question 13

Multiple Choice

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.

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Definitions:

Net Working Capital

The discrepancy between a firm's immediate assets and its short-term obligations.

Liquid Ratio

A financial metric comparing a company's liquid assets (cash and marketable securities) to its current liabilities, often used to assess liquidity.

Common Size Statement

A financial statement in which each line item is expressed as a percentage of a significant total, facilitating comparison across companies or periods.

Liabilities Plus Equity

Liabilities plus equity represents the total value of a company's financial obligations plus its owners' investments, crucial for understanding its financial health.