Which one of the following will increase a firm's times interest earned ratio?
A)an increase in debt.
B)a decrease in cost of goods sold.
C)an increase in interest expense.
D)a decrease in net income.

Question

Quizplus · Accepted Answer

The times interest earned ratio measures a company's ability to meet its interest payments on its outstanding debt. A higher ratio represents a stronger ability to meet those payments. Therefore, decreasing the cost of goods sold would increase the firm's net income, which would increase the denominator of the times interest earned ratio, resulting in a higher ratio. None of the other options would have the same effect.

Which One of the Following Will Increase a Firm's Times