Series 79 practice questionhardAdvanced Financial Analysis
A company adds debt while EBITDA remains constant. Which credit metric is directly certain to increase?
- AInterest coverage ratio
- BReturn on equity
- CNet margin
- DDebt/EBITDA ratio✓ Correct answer
Explanation
Why D — Debt/EBITDA ratio
With EBITDA fixed, additional debt directly increases debt/EBITDA. Interest coverage will worsen only to the extent the new debt creates additional interest expense and depending on its rate and timing.
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