UPSC Prelims 2020— Question 72

This question tests interest coverage ratio. The key concept is: The interest coverage ratio measures a firm's ability to meet interest obligations from operating earnings, commonly expressed as EBIT divided by interest expense. Banks can use it to assess repayment capacity and emerging credit risk. A higher ratio generally indicates stronger, not weaker, debt-servicing capacity. The verified answer for the uploaded Set-B paper is option A. Option A — 1 and 2 only: This is the correct option. It matches the verified conclusion because The interest coverage ratio measures a firm's ability to meet interest obligations from operating earnings, commonly expressed as EBIT divided by interest expense. Banks can use it to assess repayment capacity and emerging credit risk. A higher ratio generally indicates stronger, not weaker, debt-servicing capacity. The wording of the option is consistent with the governing concept tested by the question. Option B — 2 only: This is not the correct option. The option does not match the verified combination or conclusion. The decisive point is the distinction explained above: The interest coverage ratio measures a firm's ability to meet interest obligations from operating earnings, commonly expressed as EBIT divided by interest expense. Banks can use it to assess repayment capacity and emerging credit risk. A higher ratio generally indicates stronger, not weaker, debt-servicing capacity. Therefore this alternative should be eliminated even if part of its wording appears plausible in isolation. Option C — 1 and 3 only: This is not the correct option. The option does not match the verified combination or conclusion. The decisive point is the distinction explained above: The interest coverage ratio measures a firm's ability to meet interest obligations from operating earnings, commonly expressed as EBIT divided by interest expense. Banks can use it to assess repayment capacity and emerging credit risk. A higher ratio generally indicates stronger, not weaker, debt-servicing capacity. Therefore this alternative should be eliminated even if part of its wording appears plausible in isolation. Option D — 1, 2 and 3: This is not the correct option. The option does not match the verified combination or conclusion. The decisive point is the distinction explained above: The interest coverage ratio measures a firm's ability to meet interest obligations from operating earnings, commonly expressed as EBIT divided by interest expense. Banks can use it to assess repayment capacity and emerging credit risk. A higher ratio generally indicates stronger, not weaker, debt-servicing capacity. Therefore this alternative should be eliminated even if part of its wording appears plausible in isolation. For UPSC-style elimination, first identify the exact proposition being tested, then evaluate each statement independently before comparing the answer codes. Avoid treating a broad or absolute statement as correct merely because its general theme is familiar. The precise qualifiers in the question—such as 'all', 'only', 'cannot', 'largest', 'always' or a specific institutional role—often determine the answer. On that basis, option A is the verified answer.