The times interest earned ratio for a firm with earnings before taxes of $30,000, interest expense of $3,000, and income after taxes of $24,000, is:

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated by dividing earnings before taxes by interest expense.

Times interest earned ratio = Earnings before taxes / Interest expense

In this case, Earnings before taxes = $30,000 
Interest expense = $3,000

Times interest earned ratio = $30,000 / $3,000 = 10

However, the ratio is normally calculated using income before interest and taxes, which for this case would be $33,000 ($30,000 + $3,000).

Using income before interest and taxes:

Times interest earned ratio = Income before interest and taxes / Interest expense

Times interest earned ratio = $33,000 / $3,000 = 11

Therefore, the correct answer is C, 11 times.

The Times Interest Earned Ratio for a Firm with Earnings