In 2012,P Co reported profit of $1,933 million,interest expense of $395 million and income taxes of $270 million.In 2011,they reported profit of $2,142 million,interest expense of $478 million and income taxes of $818 million.Calculate the times interest earned ratio for 2012 and 2011,respectively.
A)5.05 and 4.48 times
B)6.58 and 7.19 times
C)5.73 and 6.19 times
D)6.05 and 5.48 times

Question

Quizplus · Accepted Answer

Times interest earned ratio is calculated as follows:

Times interest earned ratio = (Profit before interest and taxes) / Interest expense

For 2012:
Profit before interest and taxes = $1,933 million + $395 million + $270 million = $2,598 million
Times interest earned ratio = $2,598 million / $395 million = 6.58 times

For 2011:
Profit before interest and taxes = $2,142 million + $478 million + $818 million = $3,438 million
Times interest earned ratio = $3,438 million / $478 million = 7.19 times

Therefore, the best choice is B.

In 2012,P Co Reported Profit of $1,933 Million,interest Expense of $395