The primary difference between the debt to equity ratio and the times interest earned ratio is:
A) The debt to equity ratio uses elements from the balance sheet; the times interest earned ratio uses elements from the income statement.
B) The debt to equity ratio is a long-term solvency measure; the times interest earned ratio is a short term solvency ratio.
C) The debt to equity ratio is a long-term solvency measure; the times interest earned ratio is a performance ratio.
D) The debt to equity ratio can be compared to industry averages; the times interest earned ratio varies too widely from firm to firm to permit comparisons to the industry.

Question

Quizplus · Accepted Answer

The primary measures of long-term solvency are the debt-to-equity ratio (computed from balance sheet elements as total liabilities divided by total stockholders' equity) and times-interest-earned (computed from income statement elements as the sum of net income, interest expense, and income taxes divided by interest expense for the period).

The Primary Difference Between the Debt to Equity Ratio and the Times