Series 79 practice questionmediumFinancial Statement Analysis
A company generates EBIT of $60 million and annual interest expense of $10 million. What is the interest coverage ratio?
- A0.2x
- B6.0x✓ Correct answer
- C7.0x
- D4.0x
Explanation
Why B — 6.0x
6.0x 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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