Sabre Company’s summarized income statements for the last three years are presented below.

Required

a. Calculate the times-interest-earned ratio for years 1–3.

b. Comment on Sabre Company’s times interest-earned ratio over the three year period as a signal of its ability to continue to meet its interest payments.

Transcribed Image Text:

Net sales Cost of sales Gross margin Selling, general, and administrative expenses Year 1 Year 2 Year 3 $100,000 $90,000 $80,000 60,000 58,000 56,000 40,000 32,000 24,000 20,000 19,000 18,000 Operating income 20,000 13,000 6,000 Interest expense 3,000 4,000 5,000 Interest before tax 17,000 9,000 1,000 Tax Net Income 5,100 2,700 300 $ 11,900 $6,300 $ 700