Which of the Following Ratios Is the Best Measure in Analyzing

question 110

Multiple Choice

Which of the following ratios is the best measure in analyzing a company's ability to pay interest on long-term debt and to repay the long-term debt over several years?

• A)Debt-to-equity ratio
• B)Times interest earned ratio
• C)Debt service coverage ratio
• D)Acid-test ratio

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Definitions:

Contribution Format

A form of income statement where costs are divided into variable and fixed categories, highlighting the contribution margin of products.

Common Fixed Expenses

Expenses that do not change with the level of production or sales and are shared by multiple products or departments within a company.

Absorption Costing

An accounting method that integrates all components of manufacturing expenses—materials, labor, and every overhead, be it variable or fixed—into the final product cost.

Variable Costing

An accounting approach where only variable production costs are assigned to inventory, distinguishing it from absorption costing by treating fixed overhead as a period cost.