Series 79 practice questioneasyCoverage Ratios
Which of the following best represents a company's ability to service its debt with operating earnings?
- ACurrent ratio
- BInterest coverage ratio✓ Correct answer
- CQuick ratio
- DDebt-to-equity ratio
Explanation
Why B — Interest coverage ratio
The interest coverage ratio (EBIT/interest expense) reflects the ability to service debt. The current and quick ratios measure liquidity, not debt servicing, and debt-to-equity reflects capital structure, not earnings coverage.
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