A Toronto firm has a times interest earned ratio of 2.7 times. This means:
A) The firm generated enough cash to cover its interest expense 2.7 times.
B) The firm has sufficient EBIT to cover its interest expense 2.7 times.
C) The interest expense of this firm exceeded earnings before taxes by 2.7 times.
D) The net income of this firm is sufficient to cover its interest expense 2.7 times.
E) The firm earned $1 in EBIT for every $2.70 it paid out in interest.

Question

Quizplus · Accepted Answer

The times interest earned ratio, also known as the interest coverage ratio, measures how many times a company can cover its interest expenses with its earnings before interest and taxes (EBIT). Therefore, if a Toronto firm has a times interest earned ratio of 2.7 times, it means the firm has sufficient EBIT to cover its interest expense 2.7 times.

A Toronto Firm Has a Times Interest Earned Ratio of 2.7