What kind of information does a company's times-interest-earned ratio provide?
A) What proportion of the company's debts are long-term liabilities
B) What proportion of the company's assets are financed by debt, as opposed to equity
C) How well a company is positioned to pay interest expense on its debt
D) How much profit is generated by each share of stock

Question

Quizplus · Accepted Answer

The times-interest-earned ratio measures a company's ability to pay interest expenses on its debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense. A higher ratio indicates that a company has more earnings to cover its interest expenses, which is a positive sign for investors and creditors.

What Kind of Information Does a Company's Times-Interest-Earned Ratio Provide