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    Question

    Which group of ratios relates the financial charges of a

    firm to its ability to service them
    A Liquidity ratios Correct Answer Incorrect Answer
    B Debt ratios Correct Answer Incorrect Answer
    C Coverage ratios Correct Answer Incorrect Answer
    D Profitability ratios Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Coverage ratios relate the financial charges of a firm to its ability to service them. Coverage ratios are used to assess a company's ability to meet its financial obligations, particularly its interest and debt payment obligations. These ratios provide insights into whether a company has sufficient earnings or cash flow to cover its interest expenses and repay its debts. Examples of coverage ratios include the interest coverage ratio and debt service coverage ratio. By evaluating these ratios, investors, creditors, and analysts can gauge a company's ability to handle its financial obligations and determine its financial stability.

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