The net income for the year before interest is as follows:
Sales $ 435,000
Operating Costs $ 362,500
Net Income before interest $ 72,500
Interest Charges $ 12,500
Times interest earned ratio is the net income divided by the interest amount. It indicates how much does the profitability cover the firm's interest expenses.
Calculating Times interest earned is 72,500/12.500 = 5.8 times.