Which ratio is calculated by dividing profit before interest and taxes by total interest charges?
A) inventory turnover
B) fixed asset turnover
C) total asset turnover
D) debt-to-equity ratio
E) times-interest-earned

Question

Quizplus · Accepted Answer

The ratio calculated by dividing profit before interest and taxes by total interest charges is called times-interest-earned (TIE) ratio. TIE ratio indicates a company's ability to meet its interest payments. A higher TIE ratio indicates that the company has sufficient earnings to pay its interest expenses, whereas a lower ratio indicates that the company may struggle to pay its interest expenses. Hence, option E (times-interest-earned) is the correct choice.

Which Ratio Is Calculated by Dividing Profit Before Interest and Taxes