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Business Finance INTERMEDIATE FINAN...-MINDTAP(1 TERM)

The Time interest earned ratio of a corporation reveals its capacity for debt repayment. A higher TIE score shows that a company has enough money after paying its debts to continue investing in the business. To determine: The Times interest earned ratio The times interest earned ratio is 3.50 times Computation of Net Profit is as follows: Net profit margin =3% Annual sales = $3,000,000 Net profit margin = Net profit Sales 0 .03= Netprofit $3,000,000 Net profit =$3,000,000×0 .03 =$90,000 Computation of Earnings before tax is as follows: Tax rate =25% Earnings before tax = Net profit 1 – Tax rate = $90,000 1-0 .25 = $90,000 0 .75 =$120,000 Debt outstanding = $600,000 Interest rate=8% Interest expense =$600,000×8% =$48,000 Earnings before interest and tax EBIT = Earnings before tax + Interest expense =$120,000+$48,000 =$168,000 Time Interest earned ratio is computed as follows: Time interest earned TIE ratio= Earnings before interest and tax Interest expense = $168,000 48,000 =3 .50 times

The Time interest earned ratio of a corporation reveals its capacity for debt repayment. A higher TIE score shows that a company has enough money after paying its debts to continue investing in the business. To determine: The Times interest earned ratio The times interest earned ratio is 3.50 times Computation of Net Profit is as follows: Net profit margin =3% Annual sales = $3,000,000 Net profit margin = Net profit Sales 0 .03= Netprofit $3,000,000 Net profit =$3,000,000×0 .03 =$90,000 Computation of Earnings before tax is as follows: Tax rate =25% Earnings before tax = Net profit 1 – Tax rate = $90,000 1-0 .25 = $90,000 0 .75 =$120,000 Debt outstanding = $600,000 Interest rate=8% Interest expense =$600,000×8% =$48,000 Earnings before interest and tax EBIT = Earnings before tax + Interest expense =$120,000+$48,000 =$168,000 Time Interest earned ratio is computed as follows: Time interest earned TIE ratio= Earnings before interest and tax Interest expense = $168,000 48,000 =3 .50 times

INTERMEDIATE FINAN...-MINDTAP(1 TERM)

INTERMEDIATE FINAN...-MINDTAP(1 TERM)

14th Edition

ISBN: 9780357516720

Author: Brigham

Publisher: CENGAGE L

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INTERMEDIATE FINAN...-MINDTAP(1 TERM)

Ch. 7 - Financial ratio analysis is conducted by managers,...Ch. 7 - Prob. 3Q Ch. 7 - Profit margins and turnover ratios vary from one...Ch. 7 - How might (a) seasonal factors and (b) different...Ch. 7 - Why is it sometimes misleading to compare a...Ch. 7 - Greene Sisters has a DSO of 20 days. The companys...Ch. 7 - Vigo Vacations has $200 million in total assets,...Ch. 7 - Winston Watch’s stock price is $75 per share....Ch. 7 - Reno Revolvere has an EPS of $1.50, a cash flow...Ch. 7 - Needham Pharmaceuticals has a profit margin of 3%...

Ch. 7 - Prob. 6P Ch. 7 - Ace Industries has current assets equal to 3...Ch. 7 - Prob. 10P Ch. 7 - Prob. 11P Ch. 7 - The Kretovich Company had a quick ratio of 1.4, a...Ch. 7 - Data for Lozano Chip Company and its industry...Ch. 7 - Why are ratios useful? What three groups use ratio...Ch. 7 - Prob. 9MC Ch. 7 - What are some qualitative factors that analysts...

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