Question

Which ratio is very important from the lender's point of view?

• A. Fixed charges coverage
• B. Operating ratio
• C. Net Profit Ratio
• D. Gross profit ratio

Answer 1

The correct option is A Fixed charges coverage

Fixed charges coverage ratio is a ratio that indicates a firm's ability to satisfy fixed financing expenses such as interest and leases. since leases are fixed charge, the calculation for determining company's fixed charge coverage includes earnings before interest and taxes, interest expense, lease expense.etc. Hence, it is very important from the lender's point of view.