TIMES INTEREST EARNED (FINAL TEST) created By Masdarwati Madjid

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

1. Liquidity Analysis 
2.  Solvency Analysis
3. Profitability Analysis 
4.  Cash Flow Analysis 
5.  Risk Analysis 
6.  Bankruptcy Analysis 
7. Investment Analysis

C.  Ratio of Solvency Analysis

1. Total Debt To Equity Capital Ratio 
2. Short-term Debt To Total Debt Ratio 
3. Long-term Debt To Equity Capital Ratio 
4. Cash Flow From Operating Activities To Total Debt 
5. Times Interest Earned Ratio

 D. Times Interest Earned

 

               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 

it means the company is still very possible to increase debt financing of company