CUET Preparation Today
The formula to compute the Interest Coverage ratio is: |
$\frac{EBIT}{Interest}$ $\frac{EBT}{Interest}$ $\frac{Interest}{EBIT}$ $\frac{Interest}{EBT}$ |
$\frac{EBIT}{Interest}$ |
The correct answer is Option (1) → $\frac{EBIT}{Interest}$ The interest coverage ratio refers to the number of times earnings before interest and taxes of a company covers the interest obligation. This may be calculated as follows: ICR = EBIT/ Interest The higher the ratio, lower shall be the risk of company failing to meet its interest payment obligations. However, this ratio is not an adequate measure. A firm may have a high EBIT but low cash balance. |
