Final answer:
The times interest earned ratio is classified as an indicator of a company's solvency. The times interest earned ratio is an indicator of a company's solvency, as it shows the business's ability to meet its interest payments on debt. The correct answer is C.
Step-by-step explanation:
The times interest earned ratio is classified as an indicator of a company's solvency. This ratio measures a company's ability to meet its interest payments by comparing its earnings before interest and taxes (EBIT) to its interest expenses. A higher times interest earned ratio indicates that a company has a better ability to cover its interest obligations, indicating greater solvency.
The times interest earned ratio is an indicator of a company's solvency, as it shows the business's ability to meet its interest payments on debt.
The times interest earned ratio is a financial metric used to evaluate a company's ability to meet its interest obligations on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense. This ratio measures the buffer a firm has to cover its interest obligations and is considered an indicator of company's solvency.
It does not directly address liquidity, profitability, or long-term survival, although solvency is a factor in a company's long-term survival. High times interest earned ratio suggests that a company is able to comfortably meet its interest obligations, which signifies stronger creditworthiness and a lower risk of default.