Charles invested $3 million in the bonds of Toys & Tots Company eight years ago.Recent recalls of some toys produced by Toys & Tots has Charles worried about whether he will receive his annual interest cheque from the firm.Which ratio(s)will most directly address Charles' concern?
I.Debt / asset
II.Debt / equity
III.Times interest earned
A)I only
B)I and II only
C)III only
D)II and III only

Question

Quizplus · Accepted Answer

The ratio that directly relates to Charles' concern about receiving his annual interest cheque is the Times Interest Earned ratio, which measures a company's ability to pay its interest obligations. The Debt/Asset and Debt/Equity ratios are also important financial ratios, but they focus on a company's overall debt levels and how it is financed, rather than its ability to pay interest specifically. Thus, only option III – Times Interest Earned ratio – is the best choice here.

Charles Invested $3 Million in the Bonds of Toys