The times-interest-earned ratio is calculated as ________.
A) earnings before interest and tax divided by interest expense
B) profit before tax divided by interest expense
C) net income divided by interest expense
D) income tax expense plus interest expense divided by interest expense

Question

Quizplus · Accepted Answer

The times-interest-earned ratio measures a company's ability to meet its interest obligations on outstanding debt. It is calculated by dividing earnings before interest and tax (EBIT) by interest expense. This ratio indicates the number of times a company can cover its interest payments with its earnings before interest and taxes. A higher ratio indicates that a company is better able to meet its interest obligations.

The Times-Interest-Earned Ratio Is Calculated as ________