Investors use the times-interest-earned ratio to evaluate a business's ability to pay interest expense.

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The times-interest-earned ratio, also known as the interest coverage ratio, measures a company's ability to cover its interest expenses with its earnings before interest and taxes (EBIT). Investors and creditors use this ratio to assess a company's ability to pay interest and therefore their level of risk when investing or lending to the business.

Investors Use the Times-Interest-Earned Ratio to Evaluate a Business's Ability