Question

In the following information, what is the times interest earned ratio?

a. Fixed assets (net) at year-end $400,000
b. Average fixed assets 450,000
c. Total assets 500,000
d. Long-term liabilities 300,000
e. Total liabilities 350,000
f. Total stockholders' equity 250,000
g. Total liabilities and stockholders' equity 500,000
h. Interest expense 5,000
i. Income before income tax 150,000
j. Net income 100,000

Answer 1

TIE = 150,000 / 5,000 = 30

Step-by-step explanation:

Times Interest Earned (TIE) = Earnings Before Interest and Tax (EBIT) / Interest Expense

TIE ratio shows the ability of a company to meet its interest payments on its debt (solvency), expressed in times.

In this case 3.33% of the operating profits goes towards servicing the debt or the operating income are 30 times the annual interest expense.