Question

The berry patch has sales of $438,000, cost of goods sold of $369,000, depreciation of $37,400, and interest expense of $13,800. the tax rate is 35 percent. what is the times interest earned ratio?

Answer 1

Times interest earned ratio is calculated with the help of following formula:

Times interest earned ratio = Income before interest and tax / Interest

Income before interest and tax is calculated with the help of following formula:

Income before interest and tax = Sales – Cost of Goods Sold- Depreciation

Income before interest and tax = 438000-369000-37400 = 31,600

Hence, Times interest earned ratio = Income before interest and tax / Interest = 31600 / 13800 = 2.29 times