Question

Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant? a. The EBITDA coverage ratio increases. b. The current and quick ratios both decline. c. The total assets turnover decreases. d. The TIE declines. e. The DSO increases.

Answer 1

Answer:

The correct answer is letter "A":  The EBITDA coverage ratio increases.

Explanation:

The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) ratio is an accounting indicator that measures the profitability of a company. It is calculated by subtracting the costs of goods sold and administrative expenses from the firm's income. The EBITDA is typically used to value the capacity for generating benefits of an entity considering only its productive activity because it indicates the returns obtained from the direct exploitation of the business.

Therefore, if the EBITDA of a firm increases it is because its financial position has possibly increased.