The earnings to fixed charges ratio:
A) indicates how efficiently assets are used
B) typically includes depreciation in the denominator
C) typically excludes extraordinary gains and losses from the numerator
D) indicates the proportion of debt used to finance the company

Question

Quizplus · Accepted Answer

The earnings to fixed charges ratio typically excludes extraordinary gains and losses from the numerator, which focuses on the core operating profitability of the company. The ratio measures the ability of a company to cover its fixed charges, such as interest and lease payments, with its earnings. It is not directly related to how efficiently assets are used or the proportion of debt used to finance the company. Depreciation may or may not be included in the denominator, depending on the specific calculation formula used.

The Earnings to Fixed Charges Ratio