The correct answer is C. Interest Coverage Ratio.
The interest coverage ratio is a measure of a company’s ability to pay its interest expenses. It is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expense. A higher interest coverage ratio indicates that a company is better able to cover its interest expenses and is therefore less risky.
The current ratio is a measure of a company’s liquidity. It is calculated by dividing a company’s current assets by its current liabilities. A higher current ratio indicates that a company has more assets that can be converted into cash quickly to pay its debts.
The acid test ratio is a measure of a company’s short-term liquidity. It is calculated by dividing a company’s quick assets by its current liabilities. Quick assets are a company’s current assets that can be converted into cash quickly, such as cash, marketable securities, and accounts receivable. A higher acid test ratio indicates that a company has more assets that can be converted into cash quickly to pay its debts.
Debtors turnover is a measure of a company’s efficiency in collecting its receivables. It is calculated by dividing a company’s net credit sales by its average accounts receivable. A higher debtors turnover indicates that a company is collecting its receivables more quickly.
In conclusion, the interest coverage ratio is the best measure of a firm’s debt service capacity because it measures a company’s ability to pay its interest expenses.