The times-interest-earned ratio always equals or exceeds the times-burden-covered ratio.

Question

Quizplus · Accepted Answer

The times-interest-earned ratio measures a company's ability to meet its interest payments, while the times-burden-covered ratio measures a company's ability to cover all fixed commitments, such as interest payments, principal payments, and lease payments. Since the times-interest-earned ratio only looks at interest payments, it is typically higher than the times-burden-covered ratio, which takes into account all fixed commitments. Therefore, the statement is true.

The Times-Interest-Earned Ratio Always Equals or Exceeds the Times-Burden-Covered Ratio