Bauer Inc. has $2,050 of assets and $2,995 of sales. Its operating costs are $2,

Question

Bauer Inc. has $2,050 of assets and $2,995 of sales. Its operating costs are $2,701, including $31 of lease payments, $450 of depreciation, and $500 of amortization charges. Its total current liabilities are $315, consisting of $265 of accruals and $50 of notes payable. Its long-term debt is $850, and its interest charges are $125. The firm's debt includes all short-term and long-term interest-bearing debt, but it does not include operating items such as accounts payable and accruals. What is Bauer's times-interest-earned (TIE) ratio?

Explanation / Answer

Net Pprofit = Sales - Operating Profit

= 2,995 - 2,701 = 294

Times Interest Earned Ratio = EBIT / Interest Payment

= 294 / 125

= 2.352 Times

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