Asked by Brooke Myers on Jul 01, 2024
Verified
During 2019,Patty's Pizza reported net income of $4,212 million,interest expense of $167 million and income tax expense of $1,372 million.During 2018,Patty's reported net income of $3,568 million,interest expense of $163 million and income tax expense of $1,424 million.The times interest earned ratios for 2019 and 2018,respectively,are closest to:
A) 32.2 and 29.4 times.
B) 28.4 and 23.8 times.
C) 34.4 and 31.6 times.
D) 34.1 and 26.6 times.
Times Interest Earned Ratio
A financial metric that evaluates how well a company can cover its interest expenses with its earnings before interest and taxes.
Net Income
Net income, also known as net profit, is the total profit of a company after all revenues, costs, and expenses have been deducted.
Interest Expense
The cost incurred by an entity for borrowed funds, reflecting the interest payments on debt over a particular period.
- Compute fiscal ratios for evaluating a firm's capacity to manage interest and indebtedness.
Verified Answer
JG
Jainaleese Garcia7 days ago
Final Answer :
C
Explanation :
The times interest earned ratio is calculated as (Net Income + Interest Expense + Income Tax Expense) / Interest Expense. For 2019, it's ($4,212M + $167M + $1,372M) / $167M = 33.3 times. For 2018, it's ($3,568M + $163M + $1,424M) / $163M = 31.6 times. The closest option provided is C) 34.4 and 31.6 times.
Learning Objectives
- Compute fiscal ratios for evaluating a firm's capacity to manage interest and indebtedness.