Asked by Harry Nayan on May 26, 2024
Verified
Times interest earned is computed as
A) net income plus interest expense, divided by interest expense
B) income before income tax plus interest expense, divided by interest expense
C) net income divided by interest expense
D) income before income tax divided by interest expense
Times Interest Earned
A financial ratio that measures a company's ability to meet its interest obligations on outstanding debt.
Interest Expense
The cost incurred by an entity for borrowed funds.
Income Before Income Tax
Income Before Income Tax is a financial metric indicating the amount of profit a company makes before applying income tax expenses.
- Compute and evaluate the interest coverage ratio to examine a firm's capacity to fulfill its interest payments.
Verified Answer
KF
keyri fuentesMay 27, 2024
Final Answer :
B
Explanation :
Times interest earned is a financial metric used to evaluate a company's ability to meet its debt obligations. It is calculated by dividing the company's income before tax and interest by its interest expense. This provides an indication of the company's ability to make interest payments on its outstanding debt. Therefore, option B is the correct answer as it divides income before income tax and interest expenses by interest expenses.
Learning Objectives
- Compute and evaluate the interest coverage ratio to examine a firm's capacity to fulfill its interest payments.
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