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.