Loomis, Inc. reported the following on the company’s income statement in 2014 and 2013:

Loomis, Inc. reported the following on the company’s income statement in 2014 and 2013:


2014 2013
Interest expense $ 13,500,000 $ 16,000,000
Income before income tax expense 310,500,000 432,000,000


a. Determine the number of times interest charges were earned for 2014 and 2013. Round to one decimal place.

b. Is the number of times interest charges are earned improving or declining?


Answer:

a. Number of times interest charges earned:
2014:
2013:
$310,500,000 + $13,500,000
$13,500,000
$432,000,000 + $16,000,000
$16,000,000
= 24.0
= 28.0

b. The number of times interest charges are earned has decreased from 28.0 in 2013 to 24.0 in 2014. Although Loomis has adequate earnings to pay interest, the decline in this ratio may cause concern among debtholders.