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What does the "times-interest-earned ratio" measure? How is it expressed as a formula?

User Yevgenia
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Final answer:

The times-interest-earned ratio measures a company's ability to cover its interest payments with its earnings. It is expressed as a formula: Times-Interest-Earned Ratio = Earnings Before Interest and Taxes (EBIT) / Interest Expense.

Step-by-step explanation:

The times-interest-earned ratio measures a company's ability to cover its interest payments with its earnings. It indicates the company's ability to meet its debt obligations. It is expressed as a formula:



Times-Interest-Earned Ratio = Earnings Before Interest and Taxes (EBIT) / Interest Expense



The higher the ratio, the better, as it shows the company has more earnings available to cover its interest expenses. A ratio below 1 indicates that the company is unable to cover its interest payments.

User Asv
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