Question

abc inc. earned a gross profit of $340,000 on sales of $1,200,000 during the year. the company also had operating expenses of $180,000. other expenses included interest expense of $40,000. the company is subject to an effective income tax rate of 30%. what is the company's times interest earned ratio for the year?

Answer 1

The company's times interest earned ratio for the year is 4.

Step-by-step explanation:

The times interest earned ratio is a measure of a company's ability to make the interest payments on its debt.

It is calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expense. In this case, we need to calculate the EBIT first.

The EBIT is equal to the gross profit minus operating expenses, so it would be $340,000 - $180,000 = $160,000.

Next, we can calculate the times interest earned ratio by dividing the EBIT by the interest expense. So, it would be $160,000 / $40,000 = 4.

Therefore, the company's times interest earned ratio for the year is 4.