Which of the Following Ratios Shows How Far Operating Income

question 48

Multiple Choice

Which of the following ratios shows how far operating income can decline before the firm will have difficulties servicing its debt obligation?

• A) fixed asset turnover
• B) total asset turnover
• C) debt ratio
• D) times interest earned ratio

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Definitions:

Indirect Method

A technique used in preparing the cash flow statement, where net income is adjusted for changes in balance sheet accounts to calculate operating cash flow.

Depreciation

The systematic reduction in the recorded cost of a fixed asset to allocate its cost over its useful life, reflecting wear and tear, deterioration, or obsolescence.

Current Asset

An asset that is expected to be converted into cash, sold, or consumed within one year or within the normal operating cycle of a business.

Cash Dividends

Payments made by a corporation to its shareholder members from the company's current or retained earnings.