Debtors are interested in the times interest earned ratio because they want to
A) know what rate of interest the corporation is paying
B) have adequate protection against a potential drop in earnings jeopardizing their interest payments
C) be sure their debt is backed by collateral
D) know the tax effect of lending to a corporation

Question

Quizplus · Accepted Answer

The times interest earned ratio is used to determine the company's ability to pay its interest expenses with its earnings. A higher ratio indicates that the company has a larger cushion to protect against potential drops in earnings, which provides added protection for debt holders.

Debtors Are Interested in the Times Interest Earned Ratio Because