Chapter 11, Problem 11.3ADM

Aeropostale: Times interest earned

Aeropostale, Inc. is a specialty fashion retailer targeting young adults. The income before income tax expense and interest expense for four recent years follow (in millions):

	Year 4	Year 3	Year 2	Year 1
Income (loss) before income tax expense	$(132.1)	$(135.6)	$91.7	$129.1
Interest expense	8.8	0.9	0.5	0.4

A. Compute the time interest earned ratio for each year. (Round to one decimal place.)

B. Plot the four points on a graph with the year numbers on the horizontal axis, beginning with Year 1.

C. Interpret the trend in the ratio from your graph.

D. What happened to interest expense in Year 4? What might be the cause?