Home › CS Executive › fsm › Nature, Significance and Scope of Financial Management › The lesson cites a benchmark for the interest co…
The lesson cites a benchmark for the interest coverage ratio that lenders treat as a satisfactory guideline. According to the lesson, what is that benchmark range of EBIT to interest charges?
Answer & Solution
Correct answer: A.
1. The lesson discusses the times interest earned ratio as a profitability indicator.
2. The ratio relates operating profits to fixed interest charges from borrowings.
3. The lesson cites a benchmark of EBIT being 5 to 6 times interest charges as a satisfactory guideline.
4. Lenders, particularly banks, rely on this benchmark for projections.
5. The other multiples are not the cited benchmark.
_Source: ICSI CS Executive Paper 8 (Financial and Strategic Management) — Lesson 1: Nature, Significance and Scope of Financial Management, pp. 6-20._
Related questions
The lesson defines Net Working Capital using a simple subtraction of two current items. WhThe lesson presents the undiscounted benefit-cost ratio as a project-evaluation criterion.The lesson, while endorsing the Quick Ratio for cash-position decisions, also flags a mainIn the EVA framework set out in the lesson, the "capital charge" is described as a specifiThe lesson uses the Average Collection Period (ACP) as a liquidity indicator. According toThe lesson critiques the pay back decision criterion on a specific structural ground. WhatThe lesson lists tools of analysis that underpin investment decisions. Which combination oThe lesson asks whether financial management is a science or an art, and gives a specific