What is the importance of the term "Interest Coverage Ratio" of a firm in India?1.It helps in understanding the present risk of a firm that a bank is going to given loan to.2.It helps in evaluating the emerging risk of a firm that a bank is going to give loan to.3.The higher a borrowing firm's level of Interest Coverage Ratio, the worse is its ability to service its debt.Select the correct answer using the code given below

1. A

   1 and 2 only

   1 and 2 only. ICR shows present debt-service comfort and flags emerging stress. Higher ICR is better, not worse.

2. B

   2 only

   2 only. Present risk is also read from ICR.

3. C

   1 and 3 only

   1 and 3 only. Statement 3 reverses the ratio.

4. D

   1, 2 and 3

   All three. Statement 3 fails.

Summary. Official key is (a) 1 and 2 only. Interest Coverage Ratio (EBIT / interest) tells a banker how easily a firm services debt now and how tight it may get. A higher ratio is better, not worse.