Which ratio measures a company's ability to service its debt obligations?

The Times Interest Earned ratio is designed to assess a company's ability to meet its debt obligations, particularly its interest payments. This ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses. A higher Times Interest Earned ratio indicates that the company has sufficient earnings to comfortably cover its interest obligations, suggesting a strong capacity to service its debt.

In the context of financial analysis, this measure is critical for creditors and investors who want to understand the risk associated with lending to or investing in a company. A company with a high Times Interest Earned ratio is viewed as being less risky, as it has ample earnings to pay off its interest before profits are allocated to shareholders or reinvested back into the business.

Other ratios provided have different purposes. Gross Profit Margin reflects a company's efficiency in producing its goods and services but does not specifically address debt service capabilities. The Debt-to-Equity Ratio offers insight into a company's financial leverage but does not directly indicate its ability to meet interest payments. The Net Profit Margin measures the overall profitability of a company after all expenses, including interest, have been accounted for, but again, it doesn’t focus directly on the company's capacity to manage debt obligations. Therefore, the Times Interest