Question

Sometimes called the coverage ratio, this ratio measures the risk that interest payments will not be made if earnings decrease. a. Ratio of fixed assets to long-term liabilities b. Ratio of liabilities to stockholders' equity c. Times interest earned ratio d. Number of days' sales in inventory

Answer 1

c. Times interest earned ratio

Step-by-step explanation:

`(EBIT)/(interest \: expense) = TIE`

The earnings before interest and taxes is the amount hte company has to pay up their interest.

less than 1 meas the company is not earning enought to cover their interest expense and needs to renegociate his debt.

1 means is earning exactly their interest

more than one means it has enought to pay their interest and make a gain

The recommended value for the ratio depend on the business type and economics of the country.

But at least it must be greater than 1 to have an economic viable business.