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A bond holder would be most concerned with which one of the following? a. Inventory turnover b. Times interest earned c. Quick ratio d. Earning per share
Times interest earned
The bond holder is more concered about his interest and whether it is covered by EBIT or not so it is the most important ratio to him.
Times interest earned = EBIT / Interest expense
A bond holder would be most concerned with the time interest he can earn as he has nothing to do with EPS
b
The answer is "b" Times Interest Earned (TIE) by the company (EBIT / Interest expense). The higher the ratio value, better is the financial health of the company. This ratio is also one of the key ratios used by credit rating agencies for assigning bond ratings. If the TIE ratio deteriorates and the rating agency is yet to lower the bond rating, bond holder can avoid booking capital loss by selling the bond ahead of most others in the market, but if bond prices decline fast, which usuaully happens then the bond holder has incurred capital loss already. The real thing to do is to "predict" worsening of TIE ratio and then selling before the actual price decline occurs.
Correct answer is b
B - Times Interest Earned
I am of the opinion of 'C' Quick Ratio, Bond holder concerns about security and regular & timely payment of Interest. Quick ratio indicates Liquidity position of the organisation.
