CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

The fixed-charge coverage ratio will always be equal to or ______ than times interest earned, and the current ratio will always be equal to or ______ than the quick ratio.
A. less; greater
B. less; less
C. greater; greater
Explanation: Fixed-charge coverage includes lease expenses and other fixed charges not in the times interest earned ratio. The current ratio includes inventory in the numerator while the quick ratio does not.

User Contributed Comments 2

User Comment
justbassbaby Maybe I am smoking here but I dont think the first part is right. For an example, if EBIT=10, Interest = 20, fixed charge = 20, then (EBIT+Fixed charge)/(interest+fixed charge)=30/40=0.75, which is greater than times interest earned ratio 10/20=0.5, so you cannot say fixed charge ratio is always equal or less than times interests earned ratio
Jurrens fixed is included in times interest earned
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