# Calculating the Times Interest Earned Ratio For the most recent year

Calculating the Times Interest Earned Ratio For the most recent year, ICU Windows, Inc., had sales of \$380,000, cost of goods sold of \$110,000, depreciation expense of \$32,000, and additions to retained earnings of \$41,620. The firm currently has 30,000 shares of common stock outstanding, and the previous year's dividends per share were \$1.50. Assuming a 34 percent income tax rate, what was the times interest earned ratio? Excel formula: Net Income =Addition to retained earnings+Dividend

= 41620+30000*1.5

= 41620+45000

= 86620

Net Income = (Sales- COGS-Depreciation-Interest)*(1-Tax rate)

86620= (380000-110000-32000-Interest)*(1-0.34)

131242.42= 238000-Interest

Interest = 106757.58

Times Interest Earned ratio = Interest/net Income = 106757.58/86620 = 1.23 times

EBIT = Sales – Costs - Depreciation expense = \$380,000 - \$110,000 - \$32,000 = \$238,000 Dividend = common stock outstanding × previous year’s dividends per share = \$30,000 × \$1.50 = \$45,000 Addition to Retained Earnings = Net Income – Dividend => Net Income = Addition to Retained Earnings + Dividend Net Income = \$41,620 + \$45,000 = \$86,620 Net Income = Earnings before Taxes × (1 – Tax Rate) => Earnings before Taxes = Net Income / (1 – Tax Rate) = \$86,620 / (1 – 0.34) = \$131,242.42 Taxes = Earnings before Taxes × Tax Rate = \$131,242.42 × 0.34 = \$44,622.42 Interest Expense = EBIT - Earnings before Taxes = \$238,000 - \$131,242.42 = \$106,757.58 Times Interest Earned = EBIT / Interest Expense = \$238,000 / \$106,757.58 = 2.22 times Times Interest Earned ratio = 2.22 times

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