If a firm has only current assets and no fixed assets of any kind, its times interest earned ratio must exceed its cash coverage ratio.

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated using earnings before interest and taxes (EBIT), while the cash coverage ratio adds depreciation back into EBIT; thus, the presence of fixed assets (or lack thereof) primarily affects depreciation, which is not directly related to these ratios' comparison in the stated manner.

If a Firm Has Only Current Assets and No Fixed