Question

Thomson Trucking has $14 billion in assets, and its tax rate is 30%. Its basic earning power (BEP) ratio is 19%, and its return on assets (ROA) is 3%. What is its times-interest-earned (TIE) ratio? Round your answer to two decimal places.

Answer 1

ROA = Net income / Asset

0.03 = Net income / $14,000,000,000

Net income = $420,000,000

BEP = EBIT / Asset

0.19 = EBIT / $14,000,000,000

EBIT = $2,660,000,000

Pre tax net income = $420,000,000 × (1 - 0.30) = $294,000,000

Interest = $2,660,000,000 - $294,000,000 = $2,366,000,000

Times interest earned ratio = EBIT / Interest

Times interest earned ratio = $2,660,000,000 / $2,366,000,000

Times interest earned ratio = 1.12