US CMA Part 2 · Chapter 1 · Question 11 of 15
Irvine Logistics reported net income of $420,000, income tax expense of $140,000 and interest expense of $90,000. What is its times interest earned ratio (rounded to two decimals)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 7.22 times
Explanation
Times interest earned = EBIT / interest expense. EBIT = net income + income tax + interest = $420,000 + $140,000 + $90,000 = $650,000. TIE = $650,000 / $90,000 = 7.22 times. Using net income (4.67) or pre-tax income (6.22) omits amounts that are available to pay interest.
More Financial statement analysis: liquidity, activity and solvency MCQs
- Q13Kessler Manufacturing has EBIT of $500,000 and interest expense of $100,000. It has no preferred stock. If EBIT increases by 8%, by…
- Q14Lambert Products has sales of $1,000,000, variable costs of $600,000 and fixed operating costs of $250,000. If sales increase by 6% with…
- Q15Which of the following transactions will DECREASE a company's net working capital?
- Q1In a common-size (vertical) analysis of the income statement, each line item is expressed as a percentage of which amount?
- Q2Harlow Supply Co. reported net sales of $840,000 in Year 1 and $966,000 in Year 2. Using horizontal analysis with Year 1 as the base year…