Answer: Company C

## Explanation The dividend coverage ratio measures a company's ability to pay dividends from its earnings. It's calculated as: **Dividend Coverage Ratio = Earnings per Share / Dividends per Share** A higher ratio indicates better dividend safety, while a ratio close to 1 indicates that most earnings are being paid out as dividends, leaving little buffer. ### Analysis: - **Company A**: Dividend coverage ratio = 3.13x - **Company B**: Dividend coverage ratio = 2.50x - **Company C**: Dividend coverage ratio = 1.12x After a 20% earnings decline: - **Company A**: New coverage ratio = 3.13 × 0.8 = 2.50x (still safe) - **Company B**: New coverage ratio = 2.50 × 0.8 = 2.00x (still safe) - **Company C**: New coverage ratio = 1.12 × 0.8 = 0.90x (below 1.0, cannot cover dividends) ### Key Points: 1. **Company C** has the lowest initial dividend coverage ratio (1.12x), meaning it's already paying out nearly all its earnings as dividends 2. After a 20% earnings decline, Company C's coverage ratio drops below 1.0 (0.90x), indicating it cannot fully cover its dividend payments from earnings 3. The debt ratios are less relevant here since the question specifically asks about dividend cut risk 4. Companies A and B maintain adequate coverage even after the earnings decline **Therefore, Company C has the highest risk of a dividend cut.**

Author: LeetQuiz .