The times interest earned ratio for Bodhaine's Orchard was 8.52 in 2016,6.63 in 2017,and 2.74 in 2018.What is the most likely interpretation of this ratio?
A)The ability to cover interest costs with resources from operations is decreasing.
B)The amount of debt has been decreasing each year.
C)Current liabilities are growing faster than current assets.
D)Income taxes have reduced an increasing amount of operating income.

Question

Quizplus · Accepted Answer

The decreasing times interest earned ratio over the three-year period suggests that the company's ability to pay interest expense with resources generated is decreasing.Though the ratio is still well over 1.00,the erosion of the ratio is cause for concern.

The Times Interest Earned Ratio for Bodhaine's Orchard Was 8