Substituting EBITDA for EBIT When Computing the Times Interest Earned

question 43

Multiple Choice

Substituting EBITDA for EBIT when computing the times interest earned ratio will make the company appear

• A) more leveraged.
• B) less leveraged.
• C) more profitable.
• D) less efficient.

---

Definitions:

Indirect Method

A method used in cash flow statement preparation that adjusts net income for changes in balance sheet accounts to convert it from accrual to cash basis.

Net Income

The total profit of a company after subtracting all expenses, taxes, and costs from total revenue.

Statement Of Cash Flows

A financial statement that highlights the major activities that impact cash flows and, hence, affect the overall cash balance.

Operating Activities

These involve the primary day-to-day activities of a business, such as sales and the purchase of goods or services, which are reflected in its cash flow.