TIMES INTEREST EARNED
A. Definition of Financial Statement Analysis
The process
of reviewing and evaluating a company's financial statements (such as the
balance sheet or profit and loss statement), thereby gaining an understanding
of the financial health of the company and enabling more effective decision
making. Financial statements record financial data; however, this information
must be evaluated through financial statement analysis to become more useful to
investors, shareholders, managers and other interested parties.
B. Kind Of Financial Statement Analysis
- Liquidity Analysis
- Solvency Analysis
- Profitability Analysis
- Cash Flow Analysis
- Risk Analysis
- Bankruptcy Analysis
- Investment Analysis
C. Ratio of Solvency Analysis
- Total Debt To Equity Capital Ratio
- Short-term Debt To Total Debt Ratio
- Long-term Debt To Equity Capital Ratio
- Cash Flow From Operating Activities To Total Debt
- Times Interest Earned Ratio
show how
much earning available to cover interest expense. By this ratio we can know
company’s ability to pay interest
expense of debt used in financing. Earnings available is a earning before
interest and tax that be gotten by a company. Interest expense is a interest
expense of debt. And the formula of Time interest earned is
Key Points of Times Interest Earned
- Times Interest Earned Ratio is the same as the interest coverage ratio.
- The higher the Times Interest Earned Ratio, the better, and a ratio below 2.5 is considered a warning sign of financial distress.
- A
company will eventually default on its required interest payments if it
cannot generate enough income to cover its required interest payments.
E. CASE STUDY
F. CONCLUSION
- From the calculate shows that in 2011, PT. Unilever Indonesia Tbk and Subsidiary is able to get profit about 364,42 times from interest expense to be borne and in 2012, the company is able to get profit about 52,99 times from interest expense to be borne
- Result of these calculations indicate that in 2011 and 2012 PT. Unilever Indonesia Tbk and subsidiary is solvable because capable of making adequate profit to cover the interest expense
