What was Ajax Corp's times-interest-earned (TIE) ratio based on the provided data?
The firm's TIE ratio is approximately 13.62. To calculate the TIE ratio, we use the formula:
TIE ratio = (Operating income / Interest charges)
Calculation of Times-Interest-Earned (TIE) Ratio
Operating Income Calculation:
Operating income = Sales - Cost of goods sold - Operating costs
Operating income = RM560,000 - RM230,000 - RM132,500
Operating income = RM197,500
TIE Ratio Calculation:
TIE ratio = (Operating income / Interest charges)
TIE ratio = RM197,500 / RM14,500
TIE ratio ≈ 13.62
Therefore, based on the data provided, Ajax Corp's TIE ratio is approximately 13.62. The TIE ratio indicates the firm's ability to cover its interest charges with its operating income.