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    Question

    Which of the following financial ratios is most

    indicative of a firm's ability to service long-term debt obligations, especially in light of the declining cash flow from operations post-COVID?
    A Gross Profit Margin Correct Answer Incorrect Answer
    B Interest Coverage Ratio (ICR) Correct Answer Incorrect Answer
    C Current Ratio Correct Answer Incorrect Answer
    D Return on Assets (ROA) Correct Answer Incorrect Answer
    E Debt-to-Equity Ratio Correct Answer Incorrect Answer

    Solution

    The Interest Coverage Ratio (ICR) measures a firm’s ability to meet its interest obligations from its operating income. In situations where MSMEs face declining cash flows, this ratio becomes crucial as it indicates how many times the firm can cover its interest payments with earnings before interest and taxes (EBIT).

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