Correct answer: (a) 1 and 2 only
Explanation
- 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.
- B
2 only
2 only. Present risk is also read from ICR.
- C
1 and 3 only
1 and 3 only. Statement 3 reverses the ratio.
- 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.
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