A company's income before interest expense and taxes is $250,000 and its interest expense is $100,000. Its times interest earned ratio is equal to .4.

Question

Quizplus · Accepted Answer

The calculation of times interest earned ratio is incorrect. The correct calculation is:
Times Interest Earned Ratio = Income Before Interest Expense and Taxes / Interest Expense
= $250,000 / $100,000
= 2.5
Since the ratio is 2.5, it means the company's income is 2.5 times higher than its annual interest expense. Therefore, the answer is false as it does not match with the statement.

A Company's Income Before Interest Expense and Taxes Is $250,000