A company has current assets of $5 million and net income of $10 million.Current liabilities total $2.5 million,interest expense is $2 million,and income tax expense is $3 million.The times interest earned ratio for this company is approximately:
A)0.5.
B)7.5.
C)0.3.
D)2.0.

Question

Quizplus · Accepted Answer

Times interest earned (TIE) ratio = (Net income + Interest expense + Income tax expense) / Interest expense

= ($10 million + $2 million + $3 million) / $2 million

= 7.5

Therefore, the TIE ratio is approximately 7.5. This indicates that the company is generating sufficient income to cover its interest expense 7.5 times over, which is considered a healthy sign for investors and creditors.

A Company Has Current Assets of $5 Million and Net