The times interest earned ratio indicates
A)the margin of safety provided to creditors.
B)the extent of "trading on the equity" or financial leverage.
C)profitability without regard to how resources are financed.
D)the effectiveness of employing resources provided by owners.

Question

Quizplus · Accepted Answer

The times interest earned ratio measures a company's ability to meet interest payments on its debt. A higher times interest earned ratio indicates a greater margin of safety for creditors, as the company has a greater ability to make interest payments even if its earnings fluctuate.

The Times Interest Earned Ratio Indicates