Question

Use the following information from separate companies at hrough f:

	Net Income (Loss)			Interest Expense			Income Taxes
a.	$	168,000		$	72,240		$	42,000
b.		162,600			66,666			58,536
c.		171,100			10,266			82,128
d.		142,800			55,692			59,976
e.		109,200			32,760			41,496
f.		(47,040	)		57,389			0

Compute times interest earned.

Which company indicates the strongest ability to pay interest expense as it comes due?

Answer 1

	Net Income(Loss)	Interest Ex	Income Tax
a.	1,68,000	72,240	42,000
b.	1,62,600	66,666	58,536
c.	1,71,100	10,266	82,128
d.	1,42,800	55,692	59,976
e.	1,09,200	32,760	41,496
f.	-47,040	57,389	0
	Company	A	B	C	D	E	F
	Net Income(Loss)	1,68,000	1,62,600	1,71,100	1,42,800	1,09,200	-47,040
	Add: Income Tax	42,000	58,536	82,128	59,976	41,496	0
	Income Before Taxes	2,10,000	2,21,136	2,53,228	2,02,776	1,50,696	-47,040
	Add: Interest Expense	72,240	66,666	10,266	55,692	32,760	57,389
	Earning Before Interest & Taxes	2,82,240	2,87,802	2,63,494	2,58,468	1,83,456	10,349	EBIT
	Times Interest Ratio=EBIT/Interest Ex
	Company	A	B	C	D	E	F
	Earning Before Interest & Taxes	282240	287802	263494	258468	183456	10349
	Interest Expense	72,240	66,666	10,266	55,692	32,760	57,389
	Times Interest Ratio=EBIT/Interest Ex	3.91	4.32	25.67	4.64	5.60	0.18
	Company C has the best ability