CUET Preparation Today
The Debt Service Coverage Ratio of company A is higher than that of company B. What does this indicate? |
Company A is in better postion to meet cash commitments. Company B is in better position to meet cash commitments The company A's potential to increase debt component in its capital structure is lower The company B's potential to increase debt component in its capital structure is higher |
Company A is in better postion to meet cash commitments. |
The correct answer is Option (1) → Company A is in better postion to meet cash commitments. A higher Debt Service Coverage Ratio (DSCR) means that the company generates more cash earnings relative to its debt obligations (interest and principal payments). Hence, Company A, with a higher DSCR, is in a better financial position to meet its cash commitments and repay debts on time. |
