Analyze and compare Clorox and Procter & Gamble

The Clorox Company (CLX) and The Procter & Gamble Company (PG) produce and sell packaged consumer products around the world. Income and interest expense information from financial statements for a recent year follows (in millions):

Line Item Description Clorox Procter & Gamble
Interest expense $99 $502
Income before income tax expense 900 17,615
a. Compute the times interest earned for each company. Round to one decimal place.

Clorox: fill in the blank 1 of 2
9.1

Procter & Gamble: fill in the blank 2 of 2
35.0

b. If you were a lender to these two companies, which one appears to have the greater coverage of interest expense and thus the greater protection for your loan interest?


As a lender, you would have greater interest protection from Procter & Gamble, but both companies have adequate interest coverage.