Narita Company's times interest earned for 20 × 6 was closest to:

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated as earnings before interest and taxes (EBIT) divided by interest expense. Without additional information, we cannot calculate the exact ratio for Narita Company. However, we can use the answer choices to estimate the closest ratio.

Option A) 10.3 times: This implies that Narita Company's EBIT is only 10.3 times its interest expense. This is a very low ratio and may indicate that the company is struggling to meet its interest obligations.

Option B) 14.7 times: This is a slightly better ratio than option A, but still lower than option C.

Option C) 15.7 times: This is the highest ratio among the options provided, indicating that Narita Company's EBIT is comfortably higher than its interest expense. This suggests that the company is generating sufficient profits to meet its interest obligations.

Option D) 26.0 times: This is the highest ratio among the options provided, and while it may seem like a very safe ratio, it could also imply that the company is not using debt effectively to leverage its operations.

Therefore, based on the given options, the best choice is C) 15.7 times.

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