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1) A creditor of an organization wants to determine if the organization is likely to be...

1) A creditor of an organization wants to determine if the organization is likely to be able to continue its payments on its outstanding debts. Which of the following ratios would be the BEST choice to make this determination?

a. Times interest earned

b. Long-term debt to capital

c. Debt to tangible net worth

d. Total liabilities to total assets

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Answer #1

Option A is the answer

Times interest earned ratio

Times interest earned ratio calculates the ability of firm in paying the interest on its debts.

Times interest earned ratio = EBIT/Interest expense

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