What does the Times Interest Earned Ratio compare?

The Times Interest Earned Ratio, also known as the Interest Coverage Ratio, is a financial metric used to assess a company's ability to meet its debt obligations, particularly its interest payments. This ratio specifically compares operating income (or Earnings Before Interest and Taxes - EBIT) to interest expense.

By examining this ratio, stakeholders can evaluate how many times a company's operating income can cover its interest expenses. A higher ratio indicates a greater ability to pay interest, which can be reassuring to lenders and investors, while a lower ratio suggests potential difficulties in meeting interest obligations. This is particularly important for assessing the financial health and risk profile of a company in relation to its debt levels.

The other options evaluate different aspects of a company's financial performance and structure but do not specifically target the relationship between operating income and interest obligations. This makes the chosen answer particularly relevant for understanding how well a company can handle its interest expenses, which is crucial for assessing credit risk and overall financial stability.