Times Interest Earned Ratio

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Harleygirl35

Oct 14, 2009, 07:13 AM

I have this proble to calculate TIE...I'm confused on how to get the EBIT? :confused:

4-11) RATIO CALCULATIONS
Graser Trucking:
Has $12 billion in assets
Tax rate is 40%
Basis earning power (BEP) ratio is 15%
Return on assets (ROA) is 5%
What is its times-interest-earned (TIE) ratio?

Times Interest Earned Ratio = (net income + interest [EBIT]) / interest

ArcSine

Oct 14, 2009, 02:39 PM

Use BEP = EBIT / Assets to get EBIT.

Then use ROA = Net Income / Assets to get Net Income.

The Net Income you just computed is after tax. Use the given tax rate to back into the pre-tax Net Income.

Then finally your interest expense, which you need in TIE, will be the diff between EBIT and pre-tax Net Income.