Question

Wildlife company reported net income of $8.55 million, interest expense of $0.51 million and $0.35 million of income tax expense. wildlife's average total assets are $66.8 million and average stockholders' equity is $48.8 million. wildlife's times interest earned ratio is closest to:

O 19.47 times
O 35.00 times
O 710 times
O 14.60 times

Answer 1

The Times Interest Earned Ratio for Wildlife Company is calculated as 18.45 times, which indicates the company's ability to cover its interest expenses with its earnings. The closest provided option, 19.47 times, might be due to a rounding difference or error in options.

Step-by-step explanation:

The correct option : a

The Times Interest Earned Ratio (TIE) is a financial metric used to measure a company's ability to meet its debt obligations. For Wildlife Company, the TIE ratio can be calculated using the formula:

TIE = (Net Income + Interest Expense + Income Tax Expense) / Interest Expense

Plugging in Wildlife Company's figures:

TIE = ($8.55 million + $0.51 million + $0.35 million) / $0.51 million

TIE = $9.41 million / $0.51 million

TIE = 18.45 times

This result shows the number of times Wildlife Company can cover its interest expenses with its earnings. It indicates good financial health if the ratio is high, as it implies that the company generates sufficient earnings to pay off its interest expenses multiple times.