Asked by Elaiha Ramos on Jul 09, 2024
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Times interest earned is calculated by:
A) Multiplying interest expense by income.
B) Dividing interest expense by income before depreciation and 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.
Times Interest Earned
A financial ratio that measures a company's ability to meet its interest obligations, calculated by dividing earnings before interest and taxes by interest expenses.
Interest Expense
The cost incurred by an entity for borrowed funds, typically expressed as an annual interest rate on debts such as loans and bonds.
Income Before Depreciation
Earnings calculated by adding back depreciation expenses to net income, providing a view of profitability before accounting for asset depreciation.
- Explain the times interest earned ratio and its implications on a company’s ability to meet its interest obligations.
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Learning Objectives
- Explain the times interest earned ratio and its implications on a company’s ability to meet its interest obligations.
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