For the FY 2016 Alpha Company had net sales of 850000 and ne

For the FY 2016, Alpha Company had net sales of $850,000 and net income of $50,000, paid income taxes of $20,000, and had before tax interest expense of $10,000. Use this information to determine the: (Round & enter your answers to one decimal place and enter the value.) 1. Times Interest Earned Ratio 2. Profit Margin

Solution

Answer 1.

Net Income = $50,000
Income Tax Expense = $20,000
Interest Expense = $10,000

EBIT = Net Income + Interest Expense + Income Tax Expense
EBIT = $50,000 + $10,000 + $20,000
EBIT = $80,000

Times Interest Earned Ratio = EBIT / Interest Expense
Times Interest Earned Ratio = $80,000 / $10,000
Times Interest Earned Ratio = 8.0 times

Answer 2.

Net Income = $50,000
Net Sales = $850,000

Profit Margin = Net Income / Net Sales
Profit Margin = $50,000 / $850,000
Profit Margin = 5.9%