Question

Ajax Corp's sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times-interest-earned (TIE) ratio? a. 4.72 b. 5.51 c. 5.80 d. 4.97 e. 5.23

Answer 1

Answer:

c) 5.80

Explanation:

The net income for the year before interest is as follows:

Sales                                                $ 435,000

Operating Costs                              $ 362,500

Net Income before interest            $   72,500

Interest Charges                              $   12,500

Times interest earned ratio is the net income divided by the interest amount. It indicates how much does the profitability cover the firm's interest expenses.

Calculating Times interest earned is 72,500/12.500  =  5.8 times.