What does this ratio tell you about

CallawayCallaway​'s

ability to pay its interest​ expense?  ​(Select the best choice​ below.)

A.

CallawayCallaway​'s

operating income can fall as much as

8.88.8

times the interest expense and the company would still be able to service its debt.

B.

CallawayCallaway​'s

interest expense is

8.88.8

times higher than its competitors.

C.

CallawayCallaway​'s

gross profit can fall as much as

8.88.8

times and still be able to service its debt.

D.

CallawayCallaway​'s

operating income can fall as much as

8.88.8

times and still be able to repay its debt.

The correct choice is **A.**

The ratio in question refers to **Callaway's ability to pay its interest expense** and is likely the **interest coverage ratio**, which measures how many times a company's operating income can cover its interest expense. 

Explanation:
- An interest coverage ratio of **8.8** means that **Callaway's operating income is 8.8 times the interest expense**. This implies that their operating income can decrease significantly (by a factor of 8.8) and they would still be able to cover their interest payments. Thus, the best interpretation is that **Callaway's operating income can fall by as much as 8.8 times the interest expense, and the company would still be able to service its debt.**

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Would you like more details or have any questions?

Here are 5 related questions:
1. What does the interest coverage ratio indicate about a company’s financial health?
2. How is the interest coverage ratio calculated?
3. What is considered a good interest coverage ratio for companies in general?
4. How can an interest coverage ratio affect a company’s borrowing costs?
5. What other ratios are useful for analyzing a company’s ability to manage debt?

**Tip:** A higher interest coverage ratio suggests a company is in a stronger position to meet its debt obligations.

What does this ratio tell you about Callaway's ability to pay its interest expense? (Select the best choice below.) A. Callaway's operating income can fall as much as 8.8 times the interest expense and the company would still be able to service its debt. B. Callaway's interest expense is 8.8 times higher than its competitors. C. Callaway's gross profit can fall as much as 8.8 times and still be able to service its debt. D. Callaway's operating income can fall as much as 8.8 times and still be able to repay its debt.

Analyze Callaway's ability to pay its interest expense using the interest coverage ratio. This finance problem explains how Callaway's operating income can fall by up to 8.8 times the interest expense and still cover its debt payments. Suitable for college-level finance students.

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