From the course: Excel: Management Accounting
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Debt ratios in Excel - Microsoft Excel Tutorial
From the course: Excel: Management Accounting
Debt ratios in Excel
- [Instructor] Debt is both good and bad for firm. Debt provides a tax shield and can help create leverage to enhance profitability. However, too much debt can burden a company with an unmanageable cost structure. As management accounting professionals, a key task is helping to manage that tricky balancing act by using debt ratios. Debt ratios are financial figures that help us to understand how the company is positioned. And in particular, they answer two key questions. Number one, does the company have too much debt? And number two, based on the level of debt the firm has, can its earnings meet its debt servicing needs? Both of those issues are critical to any firm out there, right? So there's three ratios we care about when it comes to evaluating debt. The first is times interest earned, or TIE. TIE is simply equal to earnings before interest and taxes, or EBIT, divided by interest expense. TIE tells us how much we're earning relative to how much we have to pay out on debt. A TIE…
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