Ajax Corp's Times-Interest-Earned (TIE) Ratio Calculation

What was Ajax Corp's times-interest-earned (TIE) ratio based on the given data?

The firm's times-interest-earned (TIE) ratio is approximately 13.62. Option B is the correct answer. The TIE ratio is a measure of a company's ability to cover its interest expenses with its operating income. It shows how much a company's earnings can support the impact of interest charges. The formula to calculate the TIE ratio is TIE = Operating Income / Interest Charges. Using the provided data, the TIE ratio is calculated to be around 13.62.

Calculation of Ajax Corp's TIE Ratio

Sales: RM560,000 Cost of Goods Sold: RM230,000 Operating Costs: RM132,500 Interest Charges: RM14,500 To calculate the operating income, we subtract the cost of goods sold and operating costs from sales: Operating Income = Sales - Cost of Goods Sold - Operating Costs Operating Income = RM560,000 - RM230,000 - RM132,500 Operating Income = RM197,500 Now, we can plug in the values to calculate the TIE ratio: TIE = Operating Income / Interest Charges TIE = RM197,500 / RM14,500 TIE ≈ 13.62 Therefore, based on the given data, Ajax Corp's times-interest-earned (TIE) ratio is approximately 13.62. The company has enough operating income to cover its interest expenses with a cushion factor of 13.62 times.
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