How is the Interest Cover calculated?

The Interest Cover ratio is an important financial metric used to assess a company's ability to meet its interest obligations on outstanding debt. It is calculated by comparing the operating profit (also known as earnings before interest and taxes, or EBIT) to the interest expense incurred by the company.

The correct calculation includes operating profit, interest receivables, and other income receivables, divided by the total interest payables. This comprehensive calculation provides a clear picture of the company's financial health and liquidity, highlighting its capacity to generate sufficient income to cover its interest expenses.

In this scenario, while the other options provide various forms of income or profit measures divided by interest payables, they fail to account for all relevant forms of income and the potential income sources that could enhance the company's ability to pay interest. Focusing solely on operating profit without including other received incomes could underestimate the company's actual capability to meet interest obligations. Therefore, the combination of operating profit and additional income sources delivers a more accurate and holistic view of a company's interest coverage.