A high growth rate company may have a low times interest earned ratio because it has used debt to ﬁnance property, plant and equipment assets that are not yet generating a level of proﬁts expected to materialize in the future.

Question

Quizplus · Accepted Answer

A high growth company may have invested heavily in property, plant, and equipment to expand their operations and generate future profits, but these assets may not be generating enough current profits to cover the interest expense on the debt used to finance them. This can result in a lower times interest earned ratio, even though the company is on a growth trajectory.

A High Growth Rate Company May Have a Low Times