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Hello students, here is a question.
00:02
Excessive level of debts can be defined by a red flag.
00:06
While the company may have a legume resource for selecting the debt financing over equity financing, too much debts can paralyze the company as they may fall into a violation of their debts converts and have difficulty to meet their financial obligations.
00:22
So, class, how might the interest coverage ratio be telling this type of situation? so, this is our question.
00:29
Let us discuss the answer for this.
00:31
So, first let us determine the internal coverage ratio.
00:37
Internal coverage ratio.
00:43
So, the internal coverage ratio is a financial metric that measures a company's ability to interest expenses on outstanding debts.
00:51
It is calculated by dividing the company's earning ebit by the interest expenses in a situation where the company excessive level of debts, the interest coverage ratio can be telling in several ways.
01:04
So, if the interest coverage ratio is low, it means that company is struggling to generate enough earnings to the cover of interest expenses...