Coverage ratios, like times interest earned and cash coverage ratio, allow:
A) a firm's management to assess how well they meet short-term liabilities.
B) a firm's shareholders to assess how well the firm will meet its short-term liabilities.
C) a firm's creditors to assess how well the firm will meet its interest obligations.
D) a firm's creditors to assess how well the firm will meet its short-term liabilities other than interest expense.

Question

Quizplus · Accepted Answer

Coverage ratios such as times interest earned and cash coverage ratio are used by creditors to assess how well a firm will meet its interest payment obligations. These ratios provide an indication of the company's ability to generate earnings and cash flow that can be used to cover interest expenses. They are not typically used by management or shareholders to assess short-term liabilities, and they do not specifically address short-term liabilities other than interest expenses.

Coverage Ratios, Like Times Interest Earned and Cash Coverage Ratio