Which of the following statements is correct with respect to the times interest earned ratio?

I. It is independent of operating income.
II. It is independent of the interest rate paid on debt.
III. It is independent of the tax rate.
IV. It is independent of the amount of dividends paid.

A)I, II, and III
B)I and III
C)I and IV
D)III and IV

Question

Which of the following statements is correct with respect to the times interest earned ratio?

I. It is independent of operating income.
II. It is independent of the interest rate paid on debt.
III. It is independent of the tax rate.
IV. It is independent of the amount of dividends paid.

A)I, II, and III
B)I and III
C)I and IV
D)III and IV

Quizplus · Accepted Answer

The times interest earned ratio is calculated as Earnings Before Interest and Taxes (EBIT) divided by interest expenses. It is independent of the tax rate because taxes are not considered in its calculation. It is also independent of the amount of dividends paid, as dividends are distributed from net income, which is calculated after interest and taxes.

Which of the Following Statements Is Correct with Respect to the Times