Calculation of firm's times interest earned ratio:
The times interest earned ratio can be calculated with the help of following formula:
Times interest earned ratio = Income before Interest and Tax / Interest Expense
Interest expense is given $898, and Income before Interest and Tax can be calculated as follows:
Net Income $4,238
Add: Tax (4238*35/65) $2,282
Income before tax =$6520
Add: Interest Expense $898
Income before Interest and Tax = $7,418
Hence, Times interest earned ratio = 7418 /898 = 8.26 times
