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:

1. Correct. Interest Coverage Ratio = EBIT / interest expense. It shows how comfortably a firm can meet current interest obligations, so banks use it to assess the present default risk of a borrower.

2. Correct. A falling or weak interest coverage ratio can signal emerging financial stress and future repayment risk; hence it is useful in evaluating emerging risk as well.

3. Incorrect. A higher Interest Coverage Ratio means the firm has better, not worse, ability to service its debt interest.

Therefore, 1 and 2 only are correct.