Which of the following statements is not true?
A) The times interest earned ratio gives an indication of a company's ability to meet interest payments as they come due.
B) The times interest earned ratio is calculated by dividing the sum of net earnings, interest expense, and income tax expense, by interest expense.
C) EBIT can be calculated by adding interest expense and income tax expense to net earnings.
D) The higher a company's debt to total assets ratio, the lower the company's times interest earned ratio will be.

Question

Quizplus · Accepted Answer

A higher debt to total assets ratio does not necessarily mean a lower times interest earned ratio. The times interest earned ratio is more directly affected by a company's earnings and interest expenses rather than its debt to total assets ratio.

Which of the Following Statements Is Not True