A times-interest-earned (TIE) ratio of less than 1 indicates _____.
A) a less debt in the capital structure of the firm
B) a low probability that the firm will default
C) the firm's inability to meet its annual interest obligations
D) that the firm is financed only by equity
E) that the debt/assets ratio of the firm is very low

Question

Quizplus · Accepted Answer

A times-interest-earned (TIE) ratio of less than 1 indicates that the firm's earnings before interest and taxes (EBIT) are insufficient to cover its annual interest obligations, which means the firm may face difficulty in paying off its debts and may be at risk of defaulting.

A Times-Interest-Earned (TIE) Ratio of Less Than 1 Indicates _____