What is the importance of the term "Interest Coverage Ratio" of a firm in India?

1. It helps in understanding the present risk of a firm that a bank is going to give loan to.
2. It helps in evaluating the emerging risk of a firm that a bank is going to give loan to.
3. The higher a borrowing firm's level of Interest Coverage Ratio, the worse is its ability to service its debt. Select the correct answer using the code given below:

The Interest Coverage Ratio (ICR), also known as 'times interest earned,' is a debt and profitability ratio used to assess a company's ability to pay interest on its outstanding debt.

Lenders, investors, and creditors use the ICR to determine a company's riskiness relative to its current debt and future borrowing potential. A higher ICR generally indicates a stronger ability to service debt.

Therefore, a higher ICR signifies a better ability to service debt, not worse.

Statement 1 is correct: It helps in understanding the present risk. Statement 2 is correct: It helps in evaluating the emerging risk. Statement 3 is not correct: A higher ICR indicates a better ability to service debt.

Hence, statements 1 and 2 are correct.