In Volume 3 on page 525 of CFAI book an explanation says that “an interest burden factor greater than 100 percent means that nonoperating income exceeded interest expense…”. Interest burden is calculated as EBT / EBIT. EBIT is supposed to include also nonoperating income (such as dividends received) in contrast to operating income. How can than EBT be larger than EBIT? Shouldn’t the ratio of EBT / EBIT be lower or equal than one? Or did I get something wrong? Thanks in advance for your response(s)!
Same issue here. http://www.analystforum.com/phorums/read.php?11,655451 EBT=Operating Income+Non Operating Income - Interest Expense EBIT = Operating Income+Non Operating Income For EBT/EBIT > 1, means the int expense would have to be a negative (negative expense = interest income). Therefore non-op income (positive number) would exceed interest expense (a negative number). i don’t like the original statement: “an interest burden factor greater than 100 percent means that nonoperating income exceeded interest expense…”. I see your confusion and agree. Thoughts?
Thanks, I got it. However the statement from the book is quite confusing as you wrote.