Question

Calculate delta airline's times-interest-earned ratio for the year end. What does this tell you about delta airlines? (reference required to support the answer)

Answer 1

Delta airline's times-interest-earned ratio for September 2017-

Times Interest Earned Ratio- It is also called Interest coverage ratio. This ratio tells company's ability to repay its interest expenses on debt.

Formula: Interest coverage ratio = Earning before interest & tax or Operating Income / Total Interest Payable

Both EBIT and Interest expenses can be taken from Income statement of the company.

Data as on September 2017-

Interest expenses = $100 Million

Operating Income = $1839 Million

Interest coverage ratio for the quarter ended Sep.2017 = 1839 / 100

Interest coverage ratio for the quarter ended Sep.2017 = 18.39

Explanation- If the ratio is above 5, it is considered good. 18.39 ratio is very good and shows that company is in good position to repay its interest expenses as well as debt. It shows company's strong financial strength.

Reference: www.nasdaq.com