Question

Express Company reported sales of $770,000. Interest expense for the year amounted to $10,800; income tax expense, $33,000; and selling and administrative expense, $14,000. The company reported net income after taxes of $42,000. Compute the times interest earned ratio.

Answer 1

Answer:

7.94

Explanation:

The times interest earned (TIE) ratio measures how many times the company can pay its interest obligations with its current income. The formula used to calculate TIE is:

TIE = earnings before interest and taxes (EBIT) / interest expense

• EBIT = net income + income tax expense + interest expense = $42,000 + $33,000 + $10,800 = $85,800
• interest expense = $10,800

TIE = $85,800 / $10,800 = 7.94