The times interest earned ratio is calculated by dividing
A) net earnings by interest expense.
B) net earnings before interest expense and income taxes by interest expense.
C) net earnings before interest expense by interest expense.
D) net earnings before income taxes by interest expense.

Question

Quizplus · Accepted Answer

The times interest earned ratio measures a company's ability to meet its interest payment obligations. It is calculated by dividing net earnings before interest expense and income taxes by interest expense. This ratio indicates how many times a company's earnings can cover its interest payments. A higher ratio indicates a company has a larger cushion to cover its interest expense and is less risky to lenders.

The Times Interest Earned Ratio Is Calculated by Dividing