Halverson's Times Interest Earned Ratio Was 2

question 13

Multiple Choice

Halverson's times interest earned ratio was 2.98 in 2010,2.79 in 2009,and 2.31 in 2008.Which of the following statements about their ratio is possibly correct?

• A)Their increasing ratio indicates decreasing levels of debt on which interest is incurred.
• B)Their increasing ratio indicates their strategy of pursuing growth by investment in other companies which has increased debt but their profits have not yet increased from those investments.
• C)The increasing ratio implies increased long-term debt financing.
• D)Their increasing ratio would be considered by creditors to be an indicator of higher risk.

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Definitions:

Variable Costs

Expenses that vary in relation to the amount of production or the scale of business operations.

Fixed Costs

Expenses such as rent, salaries, and insurance that remain constant regardless of the amount of production or sales.

Variable Cost

A cost that varies with the level of output or production volume.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance.