6th question in the practice exam (unit 7)
I think that when the debt ratio decreases this means a better solvency position. In the 6th Q, the explanation is the opposite.
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I concur as well.
The answer to the 6th question should be due to the decrease in the interest coverage ration.
A decrease in interest coverage ratio indicates an increase in increase in Interests or decrease in EBIT , which directly signifies a decrease in its ability to pay its interest on a loan undertaken.
While a decrease in Debt Ratio indicates that either there is decrease in Total Liabilities or an increase in Total Assets which doesnt indicate weakening in the Solvency Position.
I agree with both Mohamed and Dhruv. Can the instructor please clarify?
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