Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Times Interest Earned (TIE)

Financial Accounting

14. Financial Statement Analysis

Ratios: Times Interest Earned (TIE)

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Multiple Choice

Which of the following best represents the formula for the Times Interest Earned (TIE) ratio?

TIE = (Earnings Before Interest and Taxes) \div (Interest Expense)

TIE = (Net Income) \div (Interest Expense)

TIE = (Net Sales) \div (Interest Expense)

TIE = (Total Assets) \div (Interest Expense)

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Verified step by step guidance

Step 1: Understand the Times Interest Earned (TIE) ratio. It is a financial metric used to measure a company's ability to meet its interest obligations. The formula involves dividing a measure of earnings by the interest expense.

Step 2: Identify the correct numerator for the TIE formula. The numerator should represent the earnings available to cover interest expenses before any interest or taxes are deducted. This is known as Earnings Before Interest and Taxes (EBIT).

Step 3: Identify the correct denominator for the TIE formula. The denominator is the Interest Expense, which represents the cost incurred by the company for borrowed funds.

Step 4: Combine the numerator and denominator to form the formula. The TIE ratio is calculated as:

\frac{EBIT}{Interest Expense}

Step 5: Compare the given options to the correct formula. The correct option is the one that matches the formula: TIE = (Earnings Before Interest and Taxes) ÷ (Interest Expense).