Series 79 practice questionmediumFinancial Statement Analysis
Which ratio best measures a company’s ability to pay interest on its outstanding debt?
- ACurrent ratio
- BDebt to equity ratio
- CNet margin
- DInterest coverage ratio✓ Correct answer
Explanation
Why D — Interest coverage ratio
Interest coverage ratio (EBIT/interest expense) assesses debt service ability. Other ratios do not directly reflect interest payment capacity—a classic exam distraction.
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