Halverson's Times Interest Earned Ratio Was 2

question 78

Multiple Choice

Halverson's times interest earned ratio was 2.98 in 2014, 2.79 in 2013, and 2.31 in 2012. Which of the following statements about the ratio is possibly correct?

• A) The increasing ratio indicates decreasing levels of debt on which interest is incurred.
• B) The increasing ratio indicates the strategy of pursuing growth by investment in other companies, which has increased debt, but Halverson's profits have not yet increased from those investments.
• C)The increasing ratio implies increased long-term debt financing.
• D)The increasing ratio would be considered by creditors to be an indicator of higher risk.

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Definitions:

Discount Period

The time frame within which a buyer can pay less than the full amount due on an invoice due to early payment incentives offered by the seller.

Credit to Cash

An accounting entry that indicates a decrease in an asset account, specifically reducing cash available.

Freight In

The cost associated with transporting goods into a warehouse or to the buyer, which is often included in the inventory cost of those goods.

Net Purchases

The total amount of purchases made by a business after subtracting returns, allowances, and discounts.