The 3G Co. has $2,000,000 of assets, and its tax rate is 40%. Its basic earnings power ratio is 16%,and its ROA is 8%. What is its TIE ratio

6%

Explanation:

The Times Interest Ratio is calculated by the formula;

=

Earnings Before Interest and Tax (EBIT)

BEP ratio =

EBIT = BEP ratio * Total Assets

= 16% * 2,000,000

= $320,000

Interest

(EBIT- Interest)(1- Tax rate) = Net income

EBIT - Interest =

Interest = EBIT -

Net Income = ROA * Total Assets

= 8% * 2,000,000

= $160,000

Interest = EBIT -

= 320,000 -  

= $53,333.33

Times Interest Ratio =

=

= 6%

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