Tasker Inc. earned a gross profit of $300,000 on sales of $1,200,000 during 2013. The company also had operating expenses of $180,000. These operating expenses included interest expense of $40,000. The company is subject to an effective tax rate of 30%. What is the company's times interest earned ratio for the year?

Question

Quizplus · Accepted Answer

Times interest earned ratio = (earnings before interest and taxes) / (interest expense)
Earnings before interest and taxes (EBIT) = gross profit - operating expenses (excluding interest) = $300,000 - $140,000 = $160,000
Times interest earned ratio = $160,000 / $40,000 = 4 times