The higher the value of ________ ratio, the better able the firm is to fulfill its interest obligations.
A) debt
B) average collection period
C) times interest earned
D) average payment period

Question

Quizplus · Accepted Answer

The times interest earned ratio measures a company's ability to meet its interest obligations. It is calculated by dividing earnings before interest and taxes (EBIT) by the interest expense. The higher the ratio, the better able the firm is to fulfill its interest obligations. A higher ratio also suggests that the company has more earnings available to pay off its debt, which makes it less risky for lenders. Therefore, option C is the correct choice.

The Higher the Value of ________ Ratio, the Better Able