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 affective income tax of 30%. what is the company's times interest earned ratio for the year?

Answer 1

The times interest earned ratio is 4.

Step-by-step explanation:

The times interest earned ratio measures a company's ability to cover its interest expenses with its operating income. To calculate the ratio, divide the company's operating income (gross profit - operating expenses) by its interest expense.

In this case, the company's operating income is $340,000 - $180,000 = $160,000, and its interest expense is $40,000. Therefore, the times interest earned ratio is $160,000 / $40,000 = 4.