The extent to which the operating income can decline before a firm is unable to meet its annual interest costs can be found in:
A) the fixed charge coverage ratio.
B) the debt ratio.
C) the times-interest-earned ratio.
D) the return on equity.
E) the profit margin.

Question

Quizplus · Accepted Answer

The times-interest-earned ratio measures a firm's ability to meet its interest payments with its operating income. It indicates how many times a firm's operating income can cover its interest expense. A higher ratio indicates a better ability to meet interest payments, whereas a lower ratio indicates a higher risk of defaulting on interest payments. Therefore, the extent to which the operating income can decline before a firm is unable to meet its annual interest costs can be found in the times-interest-earned ratio.

The Extent to Which the Operating Income Can Decline Before