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    Question

    Interest coverage ratio can be numerically expressed in

    the form of the following equation:-
    A (Gross profit / interest on total debts) Correct Answer Incorrect Answer
    B (Interest on long-term debts / Net profit before interest and tax) Correct Answer Incorrect Answer
    C (Net profit after interest / interest on long-term debts) Correct Answer Incorrect Answer
    D (Net profit before interest and tax/interest on long-term debts) Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The interest coverage ratio tells whether the PBIT (Profit Before Interest and Tax) is sufficient enough to pay off the interest expenses on long-term debts (like debentures) of the concerned entity.

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