Question

Using just the information provided below for Bravo Company, please comment on the TIE and identify three observations/conclusions, either positive or negative, that you can make simply by looking at the TIE ratio. (15 points). (Put another way, what might the TIE below indicate to you about Bravo, either positive or negative?)
	2016	2015	2014	2013	2012	Ind. Average
TIE (times per year)	9.6	13.4	6.8	10.1	7.0	5.6

Answer 1

Following are the observations :

1: The times interest earned ratio is presently a above the industry average which is a good sign.

2: The high times interest earned ratio in 2016 as compared to industry average means that either the EBIT is much higher than the average or the interest expense is much lower than the industry average. If the operating income is higher, it is a positive sign. If the interest expense is lower it implies that the company can make use of leverage and increase its debt component.

3: the times interest earned ratio has been fluctuating over the years which can mean two things. Either the EBIT has been fluctuating which raises doubt upon the profitability of the company are the interest expense has been fluctuating which implies that the company is changing its capital structure continuously. This is not a positive sign.