If a firm has both a fixed interest expense and fixed lease payments,
A) times interest earned ratio will be smaller than fixed charge coverage ratio.
B) times interest earned ratio will be greater than fixed charge coverage ratio.
C) times interest earned ratio will be the same as fixed charge coverage ratio.
D) fixed charge coverage ratio cannot be computed.

Question

Quizplus · Accepted Answer

Times interest earned ratio only considers interest expense as a fixed charge, while fixed charge coverage ratio takes into account both interest expense and lease payments as fixed charges. Therefore, times interest earned ratio will be smaller than fixed charge coverage ratio if a firm has both a fixed interest expense and fixed lease payments.

If a Firm Has Both a Fixed Interest Expense and Fixed