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 price-earnings 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 (also known as interest coverage ratio) is used to determine how easily a company can pay interest on its outstanding debt. It measures the extent to which the company's earnings (before interest and taxes) cover its interest payments. A higher times interest earned ratio indicates that the company is more capable of meeting its interest expenses. 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