# Times-Interest-Earned Ratio

4-8 Times-Interest-Earned Ratio

The H.R Pickett Corporation has $5000,000 of debt outstanding and it pays an interest rate of 10 percent annually; Pickett's annual sales are $2 million, its average tax rate is 30 percent, and its net profit margin on sales is 5 percent. If the company does not maintain a TIE ratio of at least 5 times, its bank will refuse to renew the loan, and bankruptcy will result. Whats Picketts TIE ratio?

Answer:

TIE= 3.86X

Just looking for a formula and steps to produce the above answer

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#### Solution Preview

Hi,

Please see the response to your posting as below:

Please check the figure of Pickett's annual sales. It must be$20 million.

Net profit margin =5% 0f sales ...

#### Solution Summary

Solutions shows calculation of Times-Interest-Earned Ratio of H.R Pickett Corporation.