A Times Interest Earned Ratio of 5 Indicates the Firm

question 11

Multiple Choice

A times interest earned ratio of 5 indicates 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% of EBIT.
• D) has a low tax liability.

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Definitions:

Monitoring

Monitoring refers to the systematic process of observing, checking, and recording activities or data for a specific purpose, often to detect changes over time.

Planning Decisions

The process of making choices about the future direction and activities of an organization, often involving strategic and tactical goals.

Organization's Activities

The various tasks and operations carried out by a business or non-profit entity to achieve its goals and objectives.

Managerial Accounting

The process of identifying, measuring, analyzing, and interpreting accounting information by managers to achieve the organization's goals.