A Times Interest Earned Ratio of 5

question 35

Multiple Choice

A times interest earned ratio of 5.0 indicates that the firm:

• A)Pays 5 times its earnings in interest expense
• B)Earns significantly more than its interest obligations
• C)Has interest expense equal to 5 percent of EBIT
• D)Has low tax liability

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Definitions:

Income Statement

A financial statement that reports a company's financial performance over a specific accounting period, detailing revenues, expenses, and net income.

Incurred

Refers to a cost that has been realized or a liability that has been acquired during a specific period.

Statement of Cash Flows

An overview of a company's cash transactions, detailing money coming in from operational efforts and investment activities, and money going out to cover the costs associated with these activities during a specific period.

Reliable

The quality of being consistently accurate and dependable, often used to describe data, methods, or instruments that yield similar results across repeated trials.