One way analysts measure the ability of a company to meet its obligations is to calculate the times interest earned ratio for any outstanding debt the company may have.For Tempo Solutions Corporation,$10,000 of bonds paying 6.5% annually are outstanding.Income before interest and taxes is $7,000.How would Tempo Solutions Corporation calculate the times interest earned ratio?

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated by dividing the company's income before interest and taxes by the interest expense. In this case, the interest expense is the annual interest paid on the outstanding bonds, which is $10,000 x 6.5% = $650. Therefore, the times interest earned ratio for Tempo Solutions Corporation would be 7,000/650 = 10.77.

One Way Analysts Measure the Ability of a Company to Meet