Creditors Often Look for a Times-Interest-Earned Ratio of at Least

question 44

True/False

Creditors often look for a times-interest-earned ratio of at least 4:1 to 6:1 before pronouncing a company a good credit risk.

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Definitions:

Break-even Sales

Break-even sales is the amount of revenue required to cover both fixed and variable costs, resulting in no profit or loss.

Variable Costs

Costs that fluctuate in direct relation to production levels or sales figures.

Fixed Costs

Costs that do not vary with the level of production or sales, remaining constant regardless of business activity.

Sales Revenue

The total amount earned from the sale of goods or services before any costs or expenses are deducted.