Concept #1: Ratios: Times Interest Earned (TIE)

Practice: XYZ Company had Income from Operations of $320,000 and Net Income of $80,000. Interest Expense during the current period was $40,000 and Notes Payable totaled $400,000. What is the company’s Times Interest Earned?

Practice: ABC Company had Net Income during the period of $60,000 after Income Taxes of $40,000. Furthermore, the company had outstanding Notes Payable at the beginning and end of the year, respectively, of $250,000 and $350,000. If interest expense was $15,000 during the period, what is the company’s TIE ratio?

A corporation with a high times interest earned ratio means that:
A) the company’s operating income is equal to its interest obligations.
B) the company’s net income is less than its interest obligations.
C) the company is not meeting its interest obligations.
D) the company’s net income plus interest expense plus income tax is greater than its interest obligations.

Calculate the times interest earned ratio based on sales of $100,000; operating expenses of $70,000; interest expense of $10,000 and Net income of $5,000.
a. 0.5x
b. 10x
c. 3x
d. 7x

Calculate the fixed interest expense assuming sales of $40,000; variable expenses of $30,000 and times interest earned ratio of 4.
a. $10,000
b. $2,500
c. $5,000
d. $7,500

The following information is available from the company's financial statements: cash $40,000, net income $450,000, interest expenses $40,000, depreciation expense $30,000, and income tax expense $20,000. What is the times interest earned?
A.11.25
B.12.25
C.13.00
D.14.50
E.None of the above