Company R and Company S each have the same operating income (EBIT) and basic earning power (BEP) ratio. Company S, however, has a lower times-interest-earned (TIE) ratio. Which of the following statements is most correct?
A) Company S has a higher ROA.
B) Company S has a higher net income.
C) Company S has a higher interest expense.
D) Statements a and b are correct.
E) Statements a, b, and c are correct.

Question

Quizplus · Accepted Answer

Company S has a lower TIE ratio, which indicates that it has a higher interest expense relative to its EBIT, as TIE is calculated as EBIT divided by interest expense.

Company R and Company S Each Have the Same Operating