Answer (D) is correct . The times interest earned ratio is one measure of a firm’s ability to pay the interest on its debt obligations out of current earnings. This ratio equals earnings before interest and taxes divided by interest expense.
Answer (A) is incorrect because The length of the operating cycle does not affect long-term debt-paying ability. By definition, long-term means longer than the normal operating cycle.
Answer (B) is incorrect because Return on assets measures only how well management uses the assets that are available. It does not compare the return with debt service costs.
Answer (C) is incorrect because The inventory turnover ratio is a measure of how well a company is managing one of its current assets.
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