The is commonly used when examining a firm's debt position and is computed by dividing the operating profits by the interest expense

the INTEREST COVERAGE RATIO is commonly used when examining a firm's debt position and is computed by dividing the operating profits by the interest expense

Explanation:

The interest coverage ratio is calculated by dividing earnings before interest and taxes (EBIT) by interest expenses.

This ratio is very useful because it gives an idea of how easy or difficult it is for a company to pay its current interest expenses.

An interest coverage ratio of 2 is the lowest threshold that separates financially stressed firms from healthy firms. The firm has enough earnings to pay its debts.

If the ratio is below 1, it means that the firm is not able to pay its interest expenses at all.

i'ts proportional. if the inflation rate is 12% for example, the cpi will be 12% less.

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