Ajax Corp's Time-Interest-Earned (TIE) Ratio Calculation

What was Ajax Corp's times-interest-earned (TIE) ratio?

The TIE ratio for Ajax Corp is approximately 13.62. Therefore, the correct answer is option (c) 13.62. The times-interest-earned (TIE) ratio measures a company's ability to cover its interest charges with its operating income. It is calculated by dividing the operating income by the interest charges.

Calculation of TIE Ratio for Ajax Corp

Formula: TIE Ratio = Operating Income / Interest Charges To calculate the TIE ratio for Ajax Corp, we need to subtract the cost of goods sold and operating costs from the sales to obtain the operating income. Operating Income Calculation: Operating Income = Sales - Cost of Goods Sold - Operating Costs Operating Income = RM560,000 - RM230,000 - RM132,500 Operating Income = RM197,500 Now we can calculate the TIE ratio: TIE Ratio = Operating Income / Interest Charges TIE Ratio = RM197,500 / RM14,500 TIE Ratio ≈ 13.62 Therefore, the TIE ratio for Ajax Corp is approximately 13.62. The TIE ratio indicates that Ajax Corp is able to cover its interest charges 13.62 times with its operating income. This shows a strong financial position and ability to meet debt obligations.
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