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A company's assets consist of $200,000 of cash, $400,000 ofaccounts receivable, $600,000 of inventory, and...

A company's assets consist of $200,000 of cash, $400,000 of accounts receivable, $600,000 of inventory, and $1,500,000 of plant and equipment. Its liabilities consist of $100,000 of accounts payable, $150,000 of accruals, and $700,000 of long-term debt. The company's annual sales are $4,000,000, its earnings before interest and taxes are $600,000, its earnings before taxes are $530,000, and its net income is "$400,000. What is the company's times interest earned"?

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Expert Solution

Earning before interest and Taxes= $ 600000

Earning before Tax = $ 530000

Net income = $ 400000

Computation of interest

We know that

EBIT-Interest = EBT

$ 600000-Interest = $ 530000

$ 600000-$ 530000= Interest

Interest = $ 70000

Hence interest amount is $ 70,000

* EBIT = Earning before interest and Taxes

EBT = Earning before Taxes

Computation of Times interest earned ratio

Times interest earned = Earning before interest and Taxes / Interest

= $ 600000/$ 70000

= 8.5714

Hence Times interest earned is 8.5714 times.

jeff jeffy answered 2 years ago
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