Answer (B) is correct . The times interest earned ratio is an income statement approach to evaluating a firm’s ongoing ability to meet the interest payments on its debt obligations. It equals earnings before interest and taxes divided by interest expense. A bondholder, being a creditor of the firm, would be most interested in how thoroughly the firm’s earnings cover the periodic interest payments on the bond.
Answer (A) is incorrect because Inventory turnover is a measure of how well the firm manages inventory; it is not of immediate concern to a bondholder.
Answer (C) is incorrect because The quick ratio is a measure of how well the firm’s current assets cover its current liabilities and is thus not the ratio of most interest to a bondholder.
Answer (D) is incorrect because Earnings per share is a baseline measure of how many dollars of net earnings can be assigned to a share of common stock and is thus of interest to an equity holder rather than a debt holder.
|
