Which of the following statements is not true?
A) The times interest earned ratio gives an indication of a company's ability to meet interest payments as they come due.
B) EBIT can be calculated by adding interest expense and income tax expense to net earnings.
C) The times interest earned ratio is calculated by dividing the sum of net earnings, interest expense, and income tax expense, by interest expense.
D) The higher a company's debt to total assets ratio, the lower the company's times interest earned ratio will be.

Question

Quizplus · Accepted Answer

A higher debt to total assets ratio does not necessarily mean a lower times interest earned ratio, as the latter depends on earnings relative to interest expenses, not just the level of debt.

Which of the Following Statements Is Not True