Series 79 practice questionmediumFinancial Statement Analysis
A company generates EBIT of $60 million and annual interest expense of $14 million. What is the interest coverage ratio?
- A0.2x
- B5.3x
- C3.2x
- D4.3x✓ Correct answer
Explanation
Why D — 4.3x
4.3x Interest coverage equals EBIT divided by interest expense. Leveraged finance teams use this ratio to judge whether operating profit provides enough cushion to service debt.
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