Asked by Trinity Honaker on May 13, 2024
Verified
A company reports the following:
Income before income tax$600,000
Interest expense150,000?
Determine the times interest earned. Round your answer to one decimal place.
Times Interest Earned
A financial ratio that measures a company's ability to meet its debt obligations based on its operating income.
Income Before Tax
A company's earnings before any taxes are applied, reflecting the profitability of the business from its operations.
Interest Expense
The cost incurred by an entity for borrowed funds, typically stated as an annual rate.
- Process and interpret vital financial ratios, incorporating the current ratio, quick ratio, inventory turnover, accounts receivable turnover, and times interest earned.
Verified Answer
AA
Arlene A. LaquianMay 18, 2024
Final Answer :
Times Interest Earned =
(Income Before Income Tax + Interest Expense)/Interest ExpenseTimes Interest Earned = ($600,000 + $150,000)/$150,000Times Interest Earned = 5.0
(Income Before Income Tax + Interest Expense)/Interest ExpenseTimes Interest Earned = ($600,000 + $150,000)/$150,000Times Interest Earned = 5.0
Learning Objectives
- Process and interpret vital financial ratios, incorporating the current ratio, quick ratio, inventory turnover, accounts receivable turnover, and times interest earned.