Question

if a firm has interest expenses of $20,000 per year, sales of 800,000 , a marginal...

if a firm has interest expenses of $20,000 per year, sales of 800,000 , a marginal tax rate of 40%, and a net profit margin of 8%, what is the firm's time interest earned (TIE) ratio?

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Answer #1

Times interest earned ratio is also called as interest coverage ratio and indicates the firms ability to meet interest obligation.

Below is the calculation:

(Net profit margin is assumed to be of Sales and is Net profit margin AFTER TAX)

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