Which one of the following ratios is used to calculate the times-interest-earned ratio?
A) Net profit/Interest expense
B) Pretax profit/EBIT
C) EBIT/Sales
D) EBIT/Interest expense

Question

Quizplus · Accepted Answer

The times-interest-earned (TIE) ratio measures a company's ability to meet its interest payments on debt. To calculate this ratio, EBIT (earnings before interest and taxes) is divided by the interest expense. Therefore, choice D is the correct ratio to use in calculating TIE.

Which One of the Following Ratios Is Used to Calculate