The Debt Service Coverage Ratio of company A is higher than that of company B. What does this indicate?
Answer & explanation
Correct answer: option 1
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.