The times interest earned ratio is computed as
A) (Income Before Income Taxes + Interest Expense) ÷ Interest Expense
B) (Income Before Income Taxes - Interest Expense) ÷ Interest Expense
C) Income Before Income Taxes ÷ Interest Expense
D) (Income Before Income Taxes + Interest Expense) ÷ Interest Revenue

Question

Quizplus · Accepted Answer

The times interest earned ratio, also known as the interest coverage ratio, measures a company's ability to meet its interest obligations. It is calculated by adding income before income taxes and interest expense, then dividing by interest expense. This formula helps determine how well a company can pay interest on its outstanding debt with its pre-tax earnings, making option A correct.

The Times Interest Earned Ratio Is Computed as