The ratio that measures the company's ability to meet required interest payments is the:
A) debt-to-equity ratio.
B) current ratio.
C) Price/Earnings ratio.
D) times interest earned ratio.

Question

Quizplus · Accepted Answer

The times interest earned ratio measures the company's ability to meet required interest payments by comparing earnings before interest and taxes (EBIT) to the interest expense. This ratio indicates the extent to which earnings can decline before the company is unable to meet interest expenses. A higher ratio indicates a greater ability to meet interest payments and is therefore favorable for lenders and investors.

The Ratio That Measures the Company's Ability to Meet Required