Question
In: Finance
In the past year, TVG had revenues of $3.04 million, cost of goods sold of $2.54...
In the past year, TVG had revenues of $3.04 million, cost of goods sold of $2.54 million, and depreciation expense of $130,280. The firm has a single issue of debt outstanding with book value of $1.04 million on which it pays an interest rate of 9%. What is the firm’s times interest earned ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Solutions
Expert Solution
Times Interest Earned Ratio is 3.95
Working:
| Times-Interest earned Ratio | = | EBIT | / | Interest |
| = | $3,69,720 | / | $93,600 | |
| = | 3.95 | |||
| Working: | ||||
| EBIT stands for Earning Before Interest aand Taxes. | ||||
| EBIT is calculated as follows: | ||||
| Revenues | $30,40,000 | |||
| Cost of goods sold | $25,40,000 | |||
| Gross Profit | $5,00,000 | |||
| Depreciation | $1,30,280 | |||
| EBIT | $3,69,720 | |||
| Interest | = | Book Value of debt | * | Interest Rate |
| = | $10,40,000 | * | 9% | |
| = | $93,600 |
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