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

Times interest earned ratio measures a company's ability to cover its interest expense with its earnings. Therefore, decreasing the cost of goods sold will increase the company's earnings, thereby increasing the times interest earned ratio. A) An increase in debt will typically decrease the times interest earned ratio since it will increase the interest expense. C) An increase in interest expense will decrease the times interest earned ratio. D) A decrease in net income will also decrease the times interest earned ratio since there will be less earnings available to cover the interest expense.

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