Question

The records of Pippins, Inc., included the following information: Net sales $ 1,000,000 Gross margin 475,000 Interest expense 50,000 Income tax expense 80,000 Net income 240,000 Compute the times interest earned ratio, rounded to the nearest decimal.

Answer 1

the times interest earned ratio is 7.4 times

Step-by-step explanation:

The computation of the times interest earned ratio is given below/;

Times interest earned ratio is

= EBIT ÷ interest expense

where

EBIT = Net Income + Interest Expense + Income tax Expense

= 240,000 + 50,000 + 80,000

= 370,000

Now the times interest earned ratio is

= $370,000 ÷ $50,000

= 7.4 times

Hence, the times interest earned ratio is 7.4 times