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    Interest coverage ratio is :
    Question

    Interest coverage ratio is :

    A.

    Profit before Tax / Interest on Debt

    B.

    Net Profit / Interest on Debt

    C.

    Profit before Interest and Taxes / Interest on Debt

    D.

    Long-term Debts / Interest on Debt

    Correct option is C


    The Interest Coverage Ratio (ICR) measures a company's ability to meet its interest obligations from its operating profit. The universally accepted formula is:

    Profit before Interest and Taxes (EBIT) indicates the operating profit generated before financing costs and taxes are considered. Interest is a financing expense, so EBIT is the most relevant measure of earning capacity for this ratio.

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