Understanding Solvency Ratios Quiz

Which of the following best describes the Interest Coverage Ratio?

• The ratio of total assets to total liabilities

• The ratio of a company's EBIT to its interest expense

• The ratio of net profit to total equity

• The ratio of current assets to current liabilities

If a company has an EBIT of £120,000 and an interest expense of £30,000, what is its Interest Coverage Ratio?

• 2 times

• 3 times

• 4 times

• 5 times

What does a Total Debt to Assets Ratio of 0.6 indicate?

• 60% of the company's assets are financed by debt

• 60% of the company's assets are financed by equity

• The company has no debt

• The company is highly liquid

A company has total debt of £500,000 and total assets of £2,000,000. What is its Total Debt to Assets Ratio?

• 0.25

• 0.50

• 0.75

• 0.20

Which of the following would most likely improve a company's Interest Coverage Ratio?

• Increasing interest expense

• Decreasing EBIT

• Increasing EBIT

• Increasing total debt

If a company’s Interest Coverage Ratio falls below 1, what does this suggest?

• The company can easily pay its interest expenses

• The company may struggle to meet its interest payments

• The company has no debt

• The company is highly profitable

Which formula correctly represents the Total Debt to Assets Ratio?

A company has EBIT of £80,000 and interest expense of £20,000. What is its Interest Coverage Ratio?

• 2 times

• 3 times

• 4 times

• 5 times

If a company has total assets of £1,500,000 and total debt of £900,000, what is its Total Debt to Assets Ratio?

• 0.60

• 0.75

• 0.50

• 0.40

Which of the following is NOT a solvency ratio?

• Interest Coverage Ratio

• Total Debt to Assets Ratio

• Current Ratio

• Debt to Equity Ratio