The times-interest-earned ratios of Orlando, Inc. are 20.56 and 7.35 for 2018 and 2019, respectively. Which of the following can be the possible reason for such a change from 2018 to 2019?

Question

Quizplus · Accepted Answer

The decrease in times-interest-earned ratio from 2018 to 2019 suggests that the company's debt-paying ability has declined. This could be due to an increase in debt, a decrease in earnings, or an increase in interest expense. Since option A and C suggest a decrease in debt or interest expenses, respectively, they cannot be correct. Option D suggests an increase in debt-paying ability, which contradicts the given information. Therefore, option B, which suggests an increase in debt specifically in its revolving line of credit, is the most plausible explanation for the decrease in times-interest-earned ratio.

The Times-Interest-Earned Ratios of Orlando, Inc