Asked by Breydon English on May 02, 2024
Verified
Wildlife Co.reported net income of $8.3 million,interest expense of $0.5 million and $0.2 million of income tax expense.Wildlife's average total assets are $65.8 million and average stockholders' equity is $48.6 million.Wildlife's times interest earned ratio is closest to:
A) 41.5 times
B) 6 times
C) 18 times
D) 45 times
Times Interest Earned Ratio
The times interest earned ratio is a financial metric used to measure a company's ability to meet its debt obligations by comparing its income before interest and tax (EBIT) to its interest expenses.
Interest Expense
The cost incurred by an entity for borrowed funds over a period of time.
- Understand and calculate the times interest earned ratio and its significance in assessing financial health.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
C
Explanation :
Times interest earned ratio = (Net Income + Interest Expense + Income Tax Expense) / Interest Expense
= ($8.3 million + $0.5 million + $0.2 million) / $0.5 million
= 18 times
Therefore, the closest answer choice is C) 18 times.
= ($8.3 million + $0.5 million + $0.2 million) / $0.5 million
= 18 times
Therefore, the closest answer choice is C) 18 times.
Learning Objectives
- Understand and calculate the times interest earned ratio and its significance in assessing financial health.