The times interest earned ratio is computed as Oa. Income Before Income Tax + Interest Expense Ob. (Income Before Income Tax - Interest Expense) + Interest Expense Oc. (Income Before Income Tax + Interest Expense) + Interest Revenue Od. (Income Before Income Tax + Interest Expense) + Interest Expense

The times interest earned ratio is computed as Oa. Income Before Income Tax + Interest Expense Ob. (Income Before Income Tax - Interest Expense) + Interest Expense Oc. (Income Before Income Tax + Interest Expense) + Interest Revenue Od. (Income Before Income Tax + Interest Expense) + Interest Expense

Corporate Financial Accounting

15th Edition

ISBN:9781337398169

Author:Carl Warren, Jeff Jones

Publisher:Carl Warren, Jeff Jones

Chapter14: Financial Statement Analysis

Section: Chapter Questions

Problem 14.7BE: To determine: Times interest earned ratio Given info: Income before income tax and interest expense....

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To determine: Times interest earned ratio Given info: Income before income tax and interest expense. Solution: Calculate interest earned ratio. Times-interest-earnedratio}=Incomebeforeincometax+InterestexpenseInterestexpense=8,000,000+500,000500,000=17.0times Explanation: Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense. Formula: Times-interest-earnedratio}=Incomebeforeincometax+InterestexpenseInterestexpense Conclusion: Therefore, times interest earned ratio is 17.0 times.
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