Question

Times-Interest-Earned Ratio

EVANS and Sons, Inc. Income Statement
(in millions)	2019	2018
Net sales	$9,800	$9,300
Cost of goods sold	(5,500)	(5,200)
Gross profit	4,300	4,100
Selling and administrative expenses	(2,800)	(2,700)
Income from operations	1,500	1,400
Interest expense	(300)	(250)
Income before income taxes	1,200	1,150
Income tax expense	(220)	(200)
Net income	$980	$950

EVANS and Sons, Inc. Balance Sheet
(in millions)	2019	2018
Assets
Current assets
Cash and cash equivalents	$100	$300
Accounts receivable	900	800
Inventory	500	650
Other current assets	400	250
Total current assets	1,900	2,000
Property, plant & equipment, net	2,600	2,500
Other assets	5,700	5,900
Total Assets	$10,200	$10,400
Liabilities and Stockholders' Equity
Current liabilities	$3,000	$2,900
Long-term liabilities	5,000	5,400
Total liabilities	8,000	8,300
Stockholders' equity-common	2,200	2,100
Total Liabilities and Stockholders' Equity	$10,200	$10,400

Calculate the times-interest-earned ratio for Evans & Sons, Inc., for 2018 and 2019.

Round answers to two decimal places.

2018	Answer
2019	Answer

Answer 1

Time interest earned ratio of Evans and sons can be calculated by dividing earnings before interest and tax by interest expense.

Income from of operation is the earnings before interest and tax of Evans and sons company.

Earnings before interest and tax of Evans and sons is $1,400 in 2018 and $1,500 in 2019.

Evans and sons interest expense in 2018 is $250 and in 2019 is $300

Evans and sons company time interest earned ratio can be completed by using following equation.

Evans and sons time interest earned ratio

= earnings before interest and tax / interest expense

2018 Time interest earned ratio of Evans and sons

= 1,400 / 250 = 5.6

Time interest earned ratio of Evans and sons in 2019

= 1,500 / 300 = 5

	Time interest earned ratio
2018	5.6 times
2019	5 times

Evans and sons time interest earned ratio is decrease in 2019 to 5 times. It indicate interest paying ability of Evans decrease. Earnings before interest and tax and interest expenses increase in 2019 as compared to 2018.