19. Temple, Inc. has sales of $329,000, cost of goods sold of $204,000, depreciation of $5,900, and interest expense of $15,100. The tax rate is 34 percent. What is the times interest earned ratio? (Please calculate the arithmetic solution and show your work)
To calculate the times interest earned (TIE) ratio, we need to divide the company's earnings before interest and taxes (EBIT) by the interest expense.
The formula for the TIE ratio is:
TIE = EBIT / Interest Expense
First, let's calculate the EBIT by subtracting the cost of goods sold (COGS), depreciation, and interest expense from the sales:
EBIT = Sales - COGS - Depreciation - Interest Expense
Given:
Sales = $329,000
COGS = $204,000
Depreciation = $5,900
Interest Expense = $15,100
Substituting the values into the formula:
EBIT = $329,000 - $204,000 - $5,900 - $15,100
EBIT = $104,000
Now, we can calculate the TIE ratio using the EBIT and interest expense:
TIE = EBIT / Interest Expense
TIE = $104,000 / $15,100
TIE ≈ 6.92
Therefore, the times interest earned (TIE) ratio is approximately 6.92.