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What is one difference between the current ratio and the times interest earned ratio?

What is one difference between the current ratio and the times interest earned ratio?

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Answer #1

Difference between current ratio and times interest earned ratio:

Current Ratio

Times Interest Earned Ratio

Liquidity ratio

Solvency Ratio

Measures the company's ability to meet its short-term obligations.

Measures the company's financial ability to meet the interest burden on debt.

Measures the readiness of current assets to conversion to cash for the discharge of current liabilities.

Measures the company's earnings before interest and taxes ability to cover the interest on debt.

Current ratio = current assets/current liabilities

Times Interest Earned Ratio = EBIT/Interest Expense
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