Question

the records of pippins, incorporated, included the following information: net sales $ 1,000,000 gross margin 475,000 interest expense 50,000 income tax expense 80,000 net income 240,000 compute the times interest earned ratio, rounded to the nearest decimal. multiple choice 4.8 6.4 7.4 20.0

Answer 1

The time interest earned ratio of the company was found to be 7.4 times to the expenses.

EBIT = Net Income + Interest Expense + Income tax Expense

= 240,000 + 50,000 + 80,000

= 370,000

Times Interest Earned Ratio:

EBIT / Interest Expense

= 370,000 / 50,000

= 7.4 times

Times interest earned ratio is a good way to measure a company's financial performance because it shows a company's ability to pay interest charges on its debts the ratio is calculated by taking a company's net income before interest and taxes and dividing it by the company's interest expense.

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