Final answer:
The times interest earned ratio for Company A is calculated by dividing the earnings before interest and taxes (approximated by adding net income, interest expense, and tax expense) by the interest expense. The calculation for Company A yields a TIE ratio of approximately 6.89, indicating the company can cover its interest payments almost seven times with its earnings.
Step-by-step explanation:
Times Interest Earned Calculation
The question at hand is asking about the times interest earned (TIE) ratio for Company A. This is a commonly used financial metric in Business that measures a company's ability to meet its debt obligations based on its income. To calculate the TIE ratio, one would divide the earnings before interest and taxes (EBIT) by the interest expense. However, given that we do not have the EBIT directly provided, for this example, let's assume it is equivalent to net income plus interest expense and tax expense - which is a simplified approximation that disregards any non-operational income.
Thus, for Company A:
- Net Income = $2,620 million
- Interest Expense = $676 million
- Tax Expense = $1,362 million
- EBIT (approximation) = $2,620m + $676m + $1,362m = $4,658 million
- TIE Ratio = EBIT / Interest Expense = $4,658m / $676m ≈ 6.89
This means that Company A can cover its interest obligations approximately 6.89 times with its earnings. It's a pivotal measure for lenders and investors to gauge the firm's financial health and risk level of their investment or loan.