Asked by Lyric Bolden on Jun 10, 2024
Verified
If the times interest earned ratio:
A) Increases,then risk increases.
B) Increases,then risk decreases.
C) Is greater than 1.5,the company is in default.
D) Is less than 1.5,the company is carrying too little debt.
E) Is greater than 3.0,the company is likely carrying too much debt.
Times Interest Earned Ratio
A financial ratio that measures a company’s ability to meet its interest obligations based on its earnings before interest and taxes (EBIT).
Default
Failure to fulfill a financial obligation, such as missing a loan repayment.
Debt
An amount of money borrowed by one party from another, often for making large purchases that they could not afford under normal circumstances, which needs to be paid back.
- Assess the impact of different financial ratios on company performance and risk.
Verified Answer
RJ
Rinaldo JosephJun 13, 2024
Final Answer :
B
Explanation :
A higher times interest earned ratio indicates that a company is generating more income to cover its interest expenses, which reduces the risk of default. Therefore, an increase in the ratio means that the risk decreases.
Learning Objectives
- Assess the impact of different financial ratios on company performance and risk.