CUET Preparation Today
What does the Interest coverage ratio indicate? |
No of times interest on long-term debts is covered by the profits available for interest. No of times interest on short-term debts is covered by the profits available for interest. No of times interest on Long-term debts is covered by the profits after tax. None of these |
No of times interest on long-term debts is covered by the profits available for interest. |
The correct answer is option 1- No of times interest on long-term debts is covered by the profits available for interest. Interest Coverage Ratio is a ratio that deals with the servicing of interest on loan. It is a measure of security of interest payable on long-term debts. It expresses the relationship between profits available for payment of interest and the amount of interest payable. It is calculated as follows: It reveals the number of times interest on long-term debts is covered by the profits available for interest. A higher ratio ensures the safety of interest on debts. |
