Which of the following is included in the denominator of the times-interest-earned ratio?
A) Lease payments
B) Principal payments
C) Interest expense
D) Gross profit

Question

Quizplus · Accepted Answer

The times-interest-earned ratio is calculated by dividing earnings before interest and taxes (EBIT) by interest expense. Therefore, interest expense is included in the denominator of the ratio. Lease payments and principal payments are not relevant to this ratio, while gross profit is a measure of profitability but does not directly relate to a company's ability to meet its interest obligations.

Which of the Following Is Included in the Denominator of the Times-Interest-Earned