Calculate the times interest earned ratio given the following information: depreciation expense = $6,000; EBIT = $90,000; cash coverage ratio = 8 times.
A) 8.0 times
B) 7.5 times
C) 7.0 times
D) 6.5 times
E) 6.0 times

Question

Quizplus · Accepted Answer

The times interest earned (TIE) ratio is calculated as EBIT divided by interest expense. Given the cash coverage ratio is 8 times, which includes depreciation, we can deduce that EBIT + Depreciation = 8 * Interest. Therefore, Interest = (EBIT + Depreciation) / 8 = ($90,000 + $6,000) / 8 = $12,000. TIE = EBIT / Interest = $90,000 / $12,000 = 7.5 times.

Calculate the Times Interest Earned Ratio Given the Following Information