Which of the Following Is True of the Times-Interest Earned

question 42

Multiple Choice

Which of the following is true of the times-interest earned (TIE) ratio of a firm?

• A) The lower the TIE ratio, the higher the probability that the firm will default on its debt.
• B) The TIE ratio is calculated by dividing net income by interest charges.
• C) The TIE ratio increases if the debt/assets ratio increases and vice versa.
• D) The TIE ratio is always more than 1.
• E) The TIE ratio shows the effects of both operating leverage and financial leverage.