Creditors are interested in the times interest earned ratio because they want to
A) know what rate of interest the corporation is paying
B) have adequate protection against a potential drop in earnings jeopardizing their interest payments
C) be sure their debt is backed by collateral
D) know the tax effect of lending to a corporation

Question

Quizplus · Accepted Answer

Creditors want to be sure that the company can generate enough earnings to cover their interest payments. The times interest earned ratio measures a company's ability to pay interest on its debt, and a higher ratio indicates that the company is less likely to default on its interest payments, providing adequate protection for the creditors.

Creditors Are Interested in the Times Interest Earned Ratio Because