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

Question

Quizplus · Accepted Answer

The times interest earned (TIE) ratio is calculated by dividing income before income taxes and interest expense by interest expense. This ratio measures a company's ability to cover its interest expenses with its operating income before taxes. Option A only considers net income, which does not include tax expenses. Option B only considers income before taxes, but not specifically income before income taxes and interest expense. Option D divides both net income and interest expense by interest expense which does not result in an accurate ratio.

The Times Interest Earned Ratio Is Calculated by Dividing