Question

If a company has sales of $17,500,000, net income of $1,475,000, earnings before interest and taxes of $2,300,000, income tax expense of $695,000, and interest expense of $130,000, and what is its number of times interest is earned?

Answer 1

The company's number of times interest is earned is 17.69, which means it can cover its interest expense 17.69 times with its earnings before interest and taxes.

Step-by-step explanation:

The number of times interest is earned, also known as the interest coverage ratio, is calculated by dividing the earnings before interest and taxes (EBIT) by the interest expense. In this case, the company's EBIT is $2,300,000, and the interest expense is $130,000.

To find the number of times interest is earned, we use this formula:

1. Number of Times Interest is Earned = EBIT / Interest Expense.
2. Number of Times Interest is Earned = $2,300,000 / $130,000.
3. Number of Times Interest is Earned = 17.69.

Therefore, the company in question can cover its interest expense 17.69 times with its earnings before interest and taxes.