Which of the statements is Not True about the Financial Expenses Coverage Ratio?a) Its general standard is 7 or 8 timesb) It shows whether EBIT is sufficient to cover the financial expensesc) It shows whether the taxable Income of the firm is sufficient to cover the financial expensesd) When EBIT / Financial Expenses = 1, the firm has 0 profits after the financial expenses are paid

Answered: Which of the statements is Not True…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Which of the statements is Not True about the Financial Expenses Coverage Ratio?

a)

Its general standard is 7 or 8 times
b)

It shows whether EBIT is sufficient to cover the financial expenses
c)

It shows whether the taxable Income of the firm is sufficient to cover the financial expenses
d)

When EBIT / Financial Expenses = 1, the firm has 0 profits after the financial expenses are paid

Expert Solution

Step 1

Financial Expense Coverage Ratio - It another word we can also known as interest coverage ratio. It shows that whether company's financial ability to repay its debt or meeting its financial obligations over a particular period of time.

Formula = EBIT / Interest Expense