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8.14 Times Interest Earned Analysis

The Times Interest Earned Ratio is an excellent profitability ratio and also one of the most common ratio that is used by lenders when making business loans. The Times Interest Earned Ratio is arrived at by dividing the Operating Income by the Interest expenses faced the small business on all its debt obligations. Thus the Times Interest Earned Ratio measures the ability of the small business to cover its interest cost from its operations.

In this analysis we can see that the times interest earned ratio is projected to be 7.7, 10.8 and 15.4 times in the years 2009, 2010 and 2011 respectively.The operating income is projected to be $108k, $134k and $162k respectively in the years ahead while the interest payments on the debt that isoutstanding on the balance sheet of A Taste of Tuscany is projected to be $14k, $12k and $10k respectively.

Clearly if, the business was to take on more debt resulting in higher interest payments, the times interest earned ratio would be impacted negatively. Alsoif the operating income were to be reduced due to slower sales and / or higher operating expenses, this ratio would again get worse.

Quick Links:

  1. Go to the Corresponding Template section for this industry.
  2. Go to the Corresponding Questionnaire section for this industry.

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