Final Answer:
The interest coverage ratio is a ratio that measures a company's ability to pay its interest expenses on outstanding debt.
Option A is answer.
Step-by-step explanation:
The interest coverage ratio is a financial metric that assesses a company's ability to meet its interest obligations on outstanding debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses. This ratio indicates how well a company can cover its interest payments from its operating income. A higher interest coverage ratio suggests a better ability to meet interest obligations, indicating financial health and stability.
Options 2, 3, and 4 are not accurate descriptions of the interest coverage ratio. Profitability is often measured by metrics like net profit margin, liquidity by ratios such as the current ratio, and efficiency by metrics like inventory turnover. The interest coverage ratio specifically focuses on a company's debt-servicing capacity.
Option A (A ratio that measures a company's ability to pay its interest expenses on outstanding debt) is the answer.