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.
Answer: A
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