One weakness of the times-interest-earned ratio is that it includes only the annual interest expense as a finance expense that must be paid.

Question

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The times-interest-earned ratio, also known as the interest coverage ratio, measures a company's ability to meet its interest obligations from its earnings before interest and taxes (EBIT). It indeed considers only the annual interest expense, omitting other financial obligations such as principal repayments, lease payments, and other forms of debt financing costs, which can also impact a company's financial health.

One Weakness of the Times-Interest-Earned Ratio Is That It Includes