Answer the following statements true (T) or false (F)

1. Investors use the times-interest-earned ratio to evaluate a company's ability to pay interest expense.
2. The times-interest-earned ratio is also called the short interest ratio.
3. A high interest-coverage ratio indicates a company has difficulty in paying interest expense.
4. The times-interest-earned ratio is calculated as EBIT divided by interest expense.
5. The times-interest-earned ratio is 6.25 for Retailer A and 5.1 for Retailer B. This indicates that Retailer
B will find it easier to pay interest expense.


1. True
2. False - The times-interest-earned ratio is also called the interest coverage ratio.
3. False - A high interest-coverage ratio indicates a company's ease in paying interest expense.
4. True
5. False - The times-interest-earned ratio is 6.25 for Retailer A and 5.1 for Retailer B. This indicates
that Retailer A will find it easier to pay interest expense.

Business

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