Читать книгу Financial Management 101 - Angie Mohr - Страница 17

The times interest earned calculation tells us how able we are to meet the interest obligations to our creditors. It is calculated as follows:

Times interest earned = Earnings before interest and taxes (EBIT) ÷ Interest expense

If our earnings before interest and taxes (ebit) is $23,496 and our interest expense is $2,674, then the ratio is —

Times interest earned = $23,496 ÷ $2,674 = 8.8 times

This means we could have paid our interest expense almost nine times over. In general, the higher the ratio, the “safer” the business is. It is critical to note, though, that this ratio only looks at the interest portion of our creditor obligations, not the required principal repayments. The principal repayments are part of the current ratio (for principal repayments due in the next 12 months) and the total debt ratio (for all principal repayments).