A high times interest earned ratio indicates a. no protection in the event of an earnings decline. b. nothing about protection in the event of an earnings decline. c. extremely good protection in the event of an earnings decline. d. mediocre protection in the event of an earnings decline.

Question

Brittany Flynn

Business

11 June, 17:50

A high times interest earned ratio indicates a. no protection in the event of an earnings decline. b. nothing about protection in the event of an earnings decline. c. extremely good protection in the event of an earnings decline. d. mediocre protection in the event of an earnings decline.

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Alonso Rose · Answer 1

Answer: c.

Explanation: Interest earned ratio describes and shows the degree of solvency of a business entity.

The higher the times interest earned ratio the better the business capacity to meet the interest on it debt obligation.

It also means that the company is well protected and favorable to investors. This does not necessarily means that the business entity is efficiently managing it's debts repayments. It is believed that businesses with ratio <2.5 are seen to posses a higher instability.