If interest expense decreases, a company's
A) net income will decrease.
B) debt to total asset ratio will increase.
C) debt to total asset ratio will decrease.
D) times interest earned ratio will increase.
E) times interest earned ratio will decrease.

Question

Quizplus · Accepted Answer

A decrease in interest expense increases the times interest earned ratio because this ratio measures how easily a company can cover its interest obligations with its earnings before interest and taxes (EBIT). Lower interest expenses mean the company can cover its interest obligations more easily, thus increasing the ratio.

If Interest Expense Decreases, a Company's