Question

To measure a business' pre-tax operating profit with interest and principal a business in a given...

To measure a business' pre-tax operating profit with interest and principal a business in a given period is?

Inventory Turnover

Long-Term Debt Ratio

Debt Coverage Ratio

Accounts Receivable Ratio

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Homework Answers

Answer #1

Answer. Debt Coverage Ratio.

Explanation.

To measure a business' pre-tax operating Profit with interest and principal a business in a given period is known as Debt Coverage Ratio or Debt Service Coverage Ratio.

Business' pre-tax operating profit is also known as Earnings Before interest and Tax (EBIT). When we divide Ebit with Interest plus Principal, we get debt coverage ratio.

Debt Coverage Ratio is calculated to determine the ability of the company to pay its minimum principal and interest payments for a given period. Lenders are mostly interested in this ratio to assess the likelyhood of payment of their debt and interest. The higher Debt Coverage Ratio is always safer than lower ratio.

Other three option are not correct.

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