Question

if company a has a tie ratio of 3 and company b has a tie ratio of 1.2, then company a is more likely to __________ than company b.

• be able to honor its debt payments
• need to use cash on hand to meet its interest obligations
• be able to repay its long - term debt
• default on its short - term debt

Explanation:

The Times Interest Earned (TIE) ratio measures a company's ability to cover interest expenses with earnings. A lower TIE ratio (Company A: 3, Company B: 12) means Company A has less earnings relative to interest obligations. So it's more likely to need cash on hand to meet interest obligations. Other options: higher TIE (B) is better at honoring debt, repaying long - term debt, and less likely to default.

Answer:

need to use cash on hand to meet its interest obligations