Western World has the following selected data ($ in millions): Balance Sheet Dat

Question

Western World has the following selected data ($ in millions):

Balance Sheet Data                                2015                       2014

   Total assets                                          $2,511                   $2,315

   Total Liabilities                                        1,685                    1,525

   Total Stockholders’ Equity                         826                     790   

Income Statement Data

   Sales                                                      $786

   Interest Expense                                      77

Tax Expense                                               32

Net Income                                                  80

Based on these amounts for Western World in 2015, which ratio is calculated as follows:

$189 divided by $77 = 2.5

Question 34 options:

Return on Assets Ratio

Times Interest Earned Ratio

Return on Equity Ratio

Debt to Equity Ratio

Return on Assets Ratio

Times Interest Earned Ratio

Return on Equity Ratio

Debt to Equity Ratio

Explanation / Answer

The ratio calculated is $189/$77 =2.5

IF Tax Expense and interest expense is added to the Net Income then we get the Earnings before Interest and Taxes (EBIT)

NI=EBIT-Interest-Taxes

Substituting the values

80=EBIT-77-32

EBIT= 189

So When we calculate the Ratio of EBIT/Interest Expense = 189/77. This is Times interest Earned Ratio.

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