Narlock Company's times interest earned for 20 × 6 was closest to:
A) 5.0 times.
B) 7.2 times.
C) 8.2 times.
D) 13.6 times.

Question

Quizplus · Accepted Answer

To calculate times interest earned, divide earnings before interest and taxes (EBIT) by interest expense. This ratio indicates how many times a company could cover its interest expense with its earnings.

We are not given the exact financial figures, so we cannot calculate times interest earned. However, we can make an educated guess based on the answer choices.

A ratio of 5.0 times would mean that Narlock Company's EBIT is only five times its interest expense. This might be too low of a ratio for a healthy company.

A ratio of 7.2 times is reasonable, but it's not the closest to the correct answer.

A ratio of 8.2 times suggests that Narlock Company is performing well and has a reasonable amount of interest expense in relation to its earnings.

A ratio of 13.6 times would be extremely high and might suggest that Narlock Company has little debt or interest expense.

Based on this reasoning, C (8.2 times) is the best choice.

Narlock Company's Times Interest Earned for 20 × 6 Was