The times-interest-earned ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs.

Question

Quizplus · Accepted Answer

The times-interest-earned ratio, also known as the interest coverage ratio, is a measure of a company's ability to meet its interest payments on its debt obligations. It indicates how many times the company's operating income can cover its interest expense. A higher ratio indicates that the company is better able to meet its interest payments, while a lower ratio suggests that the company may struggle to make its payments if its operating income declines. Therefore, the statement is true.

The Times-Interest-Earned Ratio Measures the Extent to Which Operating Income