Series 79 practice questionhardAdvanced Financial Analysis
When performing a leverage analysis, which metric best captures a company’s ability to service its total debt?
- AInterest coverage ratio
- BGross margin
- CReturn on equity
- DDebt/EBITDA ratio✓ Correct answer
Explanation
Why D — Debt/EBITDA ratio
The Debt/EBITDA ratio assesses a company’s debt capacity and repayment ability. Interest coverage focuses on interest only, not total debt, making it less comprehensive for leverage analysis.
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