Substituting EBITDA for EBIT when computing the times interest earned ratio will make the company appear
A) more leveraged.
B) less leveraged.
C) more profitable.
D) less efficient.

Question

Quizplus · Accepted Answer

Substituting EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for EBIT (Earnings Before Interest and Taxes) in the times interest earned ratio includes depreciation and amortization expenses back into earnings. This results in a higher earnings figure being used in the calculation, which can make the company appear less leveraged because it shows a higher ability to cover interest expenses.

Substituting EBITDA for EBIT When Computing the Times Interest Earned