CANADIAN TIRE- Part 5 of 11

Use two decimal points.
Do not add percentage (%), or times (X) with the number.

Calculate Times Interest Earned in 2020

Question

CANADIAN TIRE- Part 5 of 11

Use two decimal points.
Do not add percentage (%), or times (X) with the number.

Calculate Times Interest Earned in 2020

BlackTom AI · Accepted Answer

Question restatement: The task is to calculate the Times Interest Earned (TIE) for CANADIAN TIRE for the year 2020, with results to two decimal places, and there are no answer choices provided.

Important note about the data: This item does not include any answer options to evaluate, and the actual numeric values from the financial statements (such as EBIT and interest expense) are not provided here. Therefore, a concrete numerical verification cannot be performed from the information given in the prompt alone.

What Times Interest Earned means: TIE measures a company’s ability to meet interest payments from its operating earnings. It is calculated as

TIE = EBIT / Interest Expense

where EBIT stands for earnings before interest and taxes (i.e., operating income before interest and taxes), not net income.

How to obtain EBIT and interest expense from financial statements:
- EBIT can be derived from operating income or by taking Net Income and adding back interest expense and income tax expense: EBIT = Net Income + Interest Expense + Income Tax Expense. Alternatively, if the income statement presents an operating (or profit) figure before interest and taxes, that figure itself is EBIT.
- Interest Expense is the interest the company paid on its debt, typically shown as a line item on the income statement.

What you would do with actual numbers:
- Identify EBIT from the income statement (either as operating income before interest and taxes or by the Net Income + Interest + Taxes method).
- Find the Interest Expense figure.
- Compute TIE = EBIT ÷ Interest Expense.
- Round the result to two decimal places as required (e.g., 5.53).

Interpreting the provided answer (5.53): If the statement that the TIE is 5.53 is correct, this implies that EBIT equals 5.53 times the interest expense. In other words, EBIT = 5.53 × Interest Expense. To verify this with actual data, you would substitute the company’s reported EBIT and Interest Expense into the formula and see if the quotient is 5.53 when rounded to two decimals.

Why other conceptual pitfalls could arise:
- Confusing TIE with net income or gross profit. TIE specifically uses operating earnings before interest and taxes, not net income.
- Mixing up the numerator and denominator: using Net Income or Operating Cash Flow in place of EBIT will yield an incorrect TIE value.
- Using a two-decimal result without ensuring the underlying numbers meet the rounding rules and that you are using the correct year (2020 in this case).

Summary guidance: To confirm the 5.53 figure, you would need the 2020 EBIT (operating income before interest and taxes) and the 2020 Interest Expense from CANADIAN TIRE’s financial statements. Then apply TIE = EBIT ÷ Interest Expense and round to two decimals. Without those figures here, the calculation cannot be completed from the prompt alone.

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CANADIAN TIRE- Part 5 of 11 Use two decimal points. Do not add percentage (%), or times (X) with the number. Calculate Times Interest Earned in 2020

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