Practice Interest Coverage Ratio (1.4.2.4) - Ratio Analysis

Practise this section

9 questions

Flashcard drill
3 cards from this section. Quick, good the night before a test.
Exercise
6 questions · about 4 min · pass mark 70%. Hints available.
Sign up to start the exercise
Quiz
3 questions · about 2 min · pass mark 70%. Hints available.
Sign up to start the quiz

6 sample questions

Question 1.
What is the formula for calculating the Interest Coverage Ratio?
Show hintHide hint
Consider the earnings and the cost of debt.
Question 2.
If a company has an EBIT of ₹50,000 and interest expenses of ₹10,000, what is its ICR?
Show hintHide hint
Divide EBIT by interest expenses.
3Question 3.
What is the formula for the Interest Coverage Ratio?
Show hintHide hint
Break down the definitions of EBIT and interest expenses.
4Question 4.
True or False: An Interest Coverage Ratio of less than 1 is a signal of good financial health.
Show hintHide hint
Think about what the ICR signifies.
Question 5.
A company reports an EBIT of ₹500,000 and interest payments of ₹150,000. What is its Interest Coverage Ratio, and what does this say about its financial status?
Show hintHide hint
Divide EBIT by interest payments for your answer.
Question 6.
If a company's ICR falls from 4 to 2 over two years, what implications does this suggest for investors and creditors?
Show hintHide hint
Consider the reason for declining earnings.

5 more questions in this section. Enroll free to practise them all.