Ask Question
26 May, 23:10

A company's times interest earned ratio is 12.1. This means that a. the company has 12 times more debt than equity. b. bondholders are at risk of not receiving their interest payments. c. the company has more than enough earnings to make its interest payments. d. None of these choices are correct.

+4
Answers (1)
  1. 26 May, 23:32
    0
    The correct answer is letter "C": the company has more than enough earnings to make its interest payments.

    Explanation:

    Times Interest Earned or TIE measures the ability of an organization to pay its debt. TIE is calculated by dividing a company's earnings before interest and taxes by the interest that is payable on its debts. A low ratio means the company fails to pay debts, and if it fails to fulfill its responsibilities, it may default in bankruptcy. A high ratio means a business can cover its debt expenses.

    Thus, if a company's TIE is 12.1 it means its pre-taxed earnings are 12.1 greater than its annual interest expense implying the firm has the funds necessary to cover its interest payment.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “A company's times interest earned ratio is 12.1. This means that a. the company has 12 times more debt than equity. b. bondholders are at ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers