In 20X4, H Co's times interest earned ratio was 2.51 while T Co's ratio for that year was .80. Which of the following statements is false?
A) H Co's ratio appears to provide adequate coverage of interest from its present net earnings.
B) Since H Co's is actively pursuing growth through investment in other companies, its ratio may improve once those investments begin to generate additional net earnings.
C) T Co's ratio is very low and they present high risk to their creditors and investors.
D) H Co.'s ratio shows an extra margin of risk in case proﬁtability deteriorates.

Question

Quizplus · Accepted Answer

H Co.'s times interest earned ratio of 2.51 indicates it can cover its interest expenses 2.51 times with its earnings, which suggests a buffer against profitability downturns, not an extra margin of risk.

In 20X4, H Co's Times Interest Earned Ratio Was 2