An analyst has calculated a ratio using as the numerator the sum of operating cash flow, interest, and taxes, and as the denominator the amount of interest. What is this ratio, what does it measure, and what does it indicate?
a. This ratio is an interest coverage ratio, measuring a company’s ability to meet its interest obligations and indicating a company’s solvency.
b. This ratio is an effective tax ratio, measuring the amount of a company’s operating cash flow used for taxes, and indicating a company’s efficiency in tax management.
c. This ratio is an operating profitability ratio, measuring the operating cash flow generated accounting for taxes and interest, and indicating a company’s liquidity.