In calculating the Times Interest Ratio?

Question

If the interest is negative how do I calculate if the denominator is negative.

Answer 1

If interest is negative, that means you are looking at a company with net interest income (more interest earned than paid). What needs to be done is:

1. Identify and back out the interest income, leaving only interest paid on this line
2. Make sure you use EBIT for the numerator. EBIT is before interest expense and interest earnings

With these adjustments you will see the margin of safety a company has over its "fixed" interest payments.

Answer 2

Calculate Times Interest Earned