Coverage ratio: Trident Company has debt of $3.35 million with an interest rate of 6.875 percent. The company has an EBIT of $2,766,009. What is its times interest earned?
A) 13 times
B) 12 times
C) 11 times
D) None of the above

Question

Quizplus · Accepted Answer

Times interest earned is calculated as EBIT divided by interest expenses.

Interest expenses = Debt * Interest rate = $3,350,000 * 0.06875 = $230,937.50

Times interest earned = EBIT / Interest expenses = $2,766,009 / $230,937.50 = 11.97

Rounding to the nearest whole number gives a times interest earned of 12. Therefore, the best choice is B.

Coverage Ratio: Trident Company Has Debt of $3