Problem 412 Ratio Calculations Graser Trucking has 25 billio

Problem 4-12 Ratio Calculations Graser Trucking has $25 billion in assets, and its tax rate is 35% Its basic earning power BEP decimal places. atio s 16 and its return o assets RO is 5 what is tst mes-interest earned ratio o n your answer two

Solution

Calculation of Time Interest earned ratio

Basic earning power = EBIT / Total assets

.16=EBIT / 2500,00,00,000

EBIT =400,00,00,000

Return on Assets = EAT / Total asset

.05= EAT / 2500,00,00,000

EAT=125,00,00,000

EBT= EAT / (1- Tax rate)

=125,00,00,000/(1-.35)

=192,30,76,923

Interest expenses = EBIT – EBT

=400,00,00,000-192,30,76,923

=207,69,23,077

Time Interest earned ratio = EBIT / Interest expenses

=400,00,00,000/207,69,23,077

=1.93 times