Respuesta :
A business reported a $3,900 interest charge, a $16,600 profit before interest and taxes, and a $7,000 profit overall. The ratio of times interest earned by the corporation is 4.26.
What does the ratio of times interest earned indicate?
The times interest earned ratio measures a company's solvency by determining if it generates enough revenue to cover its debt. It specifically contrasts the revenue generated by a business before taxes and interest with the interest costs associated with its debt obligations.
The interest coverage ratio, sometimes referred to as the times interest earned (TIE) ratio, gauges how readily a business can settle its debts with its present income. Divide revenue by the total amount of interest due on bonds or other types of debt to arrive at this ratio.
Times Interest Earned Ratio = prior to interest costs and taxes on income / Interest Expense
Times Interest Earned Ratio = $16,600 / $3,900 = 4.26
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