Calculate TIE Ratio for The Pickett Corporation
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The Pickett Corporation has $500,00 of debt outstanding and it pays an interest rate of 10% annually. Pickets annual sales are two million its averate rate is 30% and its profit margin on sales is five 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. What is Picketts TIE ratio?
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This problem explains how to calculate the TIE ratio. Shows the calculations in step-by-step manner for easy understanding.
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TIE Ratio = EBIT / Total Interest Payable
Total Interest payable = $500,00*10%=$5000
Kindly note that this question talks about profit ...
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