Answer: improved.

## Explanation The interest coverage ratio using EBITDA is calculated as: **EBITDA Interest Coverage Ratio = EBITDA / Interest Expense** Where **EBITDA = Operating Income + Depreciation & Amortization** ### Year 1 Calculation: - Operating Income = 168 - Depreciation & Amortization = 422 - **EBITDA = 168 + 422 = 590** - Interest Expense = 120 - **Interest Coverage Ratio = 590 / 120 = 4.92** ### Year 2 Calculation: - Operating Income = 217 - Depreciation & Amortization = 416 - **EBITDA = 217 + 416 = 633** - Interest Expense = 155 - **Interest Coverage Ratio = 633 / 155 = 4.08** Wait, let me recalculate: **Year 1:** EBITDA = 168 + 422 = 590 Interest Coverage = 590 / 120 = 4.9167 **Year 2:** EBITDA = 217 + 416 = 633 Interest Coverage = 633 / 155 = 4.0839 Actually, the ratio decreased from 4.92 to 4.08, which suggests deterioration, not improvement. Let me check my calculations again: **Year 1:** EBITDA = 168 + 422 = 590 Interest Expense = 120 Coverage Ratio = 590 / 120 = 4.9167 **Year 2:** EBITDA = 217 + 416 = 633 Interest Expense = 155 Coverage Ratio = 633 / 155 = 4.0839 The coverage ratio decreased from 4.92 to 4.08, which means the company's ability to cover interest payments with EBITDA has deteriorated. However, let me reconsider the question. The correct answer should be **A. deteriorated** because: 1. Year 1 coverage ratio: 590/120 = 4.92 2. Year 2 coverage ratio: 633/155 = 4.08 3. The ratio decreased, indicating worse creditworthiness **Correct Answer: A. deteriorated** **Key Points:** - Higher interest coverage ratios indicate better creditworthiness - A decrease in the ratio suggests deterioration in the company's ability to service its debt - Even though EBITDA increased from 590 to 633, interest expense increased more significantly from 120 to 155, causing the ratio to decline

Author: LeetQuiz .