Times interest earned is calculated by:
A) Multiplying interest expense times income.
B) Dividing interest expense by income before interest expense.
C) Dividing income before interest expense and income taxes by interest expense.
D) Multiplying interest expense by income before interest expense.
E) Dividing income before interest expense by interest expense and income taxes.

Question

Quizplus · Accepted Answer

Times interest earned is calculated by dividing income before interest expense and income taxes by interest expense. This ratio measures a company's ability to cover its interest expenses with its operating income. A higher times interest earned ratio indicates a greater ability to meet interest payment obligations.

Times Interest Earned Is Calculated By