The formula to compute the Interest Coverage ratio is:

Option 1 -> Uses EBIT (Earnings Before Interest and Taxes) in the numerator and Interest in the denominator, measuring how many times earnings can cover interest payments.

Option 2 -> Uses EBT (Earnings Before Tax) which is calculated after deducting interest, making it illogical to measure interest coverage since interest is already removed from earnings.

Option 3 -> Inverts the ratio by placing Interest in the numerator and EBIT in the denominator, which would calculate the proportion of earnings consumed by interest rather than coverage capacity.

Option 4 -> Also inverts the ratio and uses EBT, combining both errors of wrong numerator/denominator placement and using earnings after interest deduction.

Hence, Option 1: $\frac{\text{EBIT}}{\text{Interest}}$ -> The Interest Coverage Ratio measures a company's ability to pay interest on outstanding debt. EBIT (Earnings Before Interest and Taxes) represents operating earnings available before interest obligations, and dividing this by Interest Expense shows how many times the company can cover its interest payments from operations. A higher ratio indicates better financial health and lower default risk. -> correct