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# The Times Interest Earned Ratio and other financial ratios

I need assistance with the 2 questions below. Attached is the income statement and balance sheet.

1. Show the calculation for the ratio Times interest earned

2. What do the liquidity, profitability, and solvency ratios reveal about the company's financial position?

#### Solution Preview

1. Show the calculation for the ratio Times interest earned

The times interest earned ratio is calculated as follows:

earnings before interest and taxes (EBIT) / interest expense.

I am not sure which years you need, so we'll look at all of them.

2004 Profit before interest and taxes = 224669 / interest expense 1301 = 172.69. This indicates that because debt is low, which means that interest payable is low, the company has the resources necessary to pay on their own debt. The higher the ratio, the better. I am surprised that that's all that was paid in interest expense, given the current portion of their long term debt. To illustrate our ...

#### Solution Summary

1. Show the calculation for the ratio Times interest earned

2. What do the liquidity, profitability, and solvency ratios reveal about the company's financial position?

\$2.19