- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 11. Financial Analysis Techniques
- Subject 4. Solvency Ratios
CFA Practice Question
Given the following data: EBIT = 100; Depreciation = 40; Interest = 20; Dividends = 10, calculate the Times Interest Earned (TIE) ratio.
B. 7.0
C. 14.0
A. 5.0
B. 7.0
C. 14.0
Correct Answer: A
TIE = 100/20 = 5
User Contributed Comments 5
| User | Comment |
|---|---|
| hcliv | B is correct if the coverage ratio is EBITDA/Interest |
| kalps | I agree with A, why are you assuming it is EBITDA ? |
| tony1973 | TIE = EBIT/Interest Expense: often referred to as the interest coverage ratio. It measures the protection available to creditors as the extent to which earnings available for interest "cover" interest expense. A more comprehensive measure, the fixed charge coverage ratio, includes all fixed charges: Fixed charge coverage = Earnings Before Fixed charges and taxes / Fixed charges |
| Nightsurfer | It's the coverage ratio for recurring operating earnings. That's why D and A aren't added back. Dividends aren't deducted because they don't have to be paid, in a worst case. They have a lower priority to creditor obligations. |
| khalifa92 | lol why not just say calculate interest coverage ratio and not complicate things |