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    Harleygirl35's Avatar
    Harleygirl35 Posts: 3, Reputation: 1
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    #1

    Oct 14, 2009, 07:13 AM
    Times Interest Earned Ratio
    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's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    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.
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