During 2019, Patty's Pizza reported net income of $3,212 million, interest expense of $187 million and income tax expense of $2,372 million. During 2018, Patty's reported net income of $2,568 million, interest expense of $183 million and income tax expense of $2,424 million. The times interest earned ratios for 2019 and 2018, respectively, are closest to:

Question

Business

Devin Simon

23 September, 10:50

During 2019, Patty's Pizza reported net income of $3,212 million, interest expense of $187 million and income tax expense of $2,372 million. During 2018, Patty's reported net income of $2,568 million, interest expense of $183 million and income tax expense of $2,424 million. The times interest earned ratios for 2019 and 2018, respectively, are closest to:

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Answers (1)

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Heather Roberson · Answer 1

For 2019: 30.9, and for 2018: 28.3

Explanation:

Year Net Income Interest Expense Income Tax Expense

2019 $3,212 $187 $2,372

2018 $2,568 $183 $2,424

Times interest earned ratio = earnings before interest and tax (EBIT) / interest expense

2019 EBIT = Net Income + Interest Expense + Income Tax Expense

2019 EBIT = $3,212 + $187 + $2,372

2019 EBIT = $5,771

2018 EBIT = $5,175

Now we can finally calculate the Times interest earned ratios (TIER)

2019 TIER = $5,771 / $187

2019 TIER = 30.9

2018 TIER = $5,175 / $183

2018 TIER = 28.3