From page 609 in the Equity Analysis book: An interet burden factor greater than 100 percent means that nonoperating income exceeded interest expense in all three years. ------------------------------------------ Can someone give me an example where interest burden would be greater than 100 percent? The formula for interest burden is: EBT/EBIT For it to be above 1, it seems to me that interest would have to be negative, meaning that they are being paid interest, i.e. they are lending only or more than they are borrowing. Is this the only scenario? Or am I looking at it totally wrong.
If your EBIT is negative, then any interest expense would make your interest burden >1. For example, EBIT is -100, and interest expense is 100, then your EBT is -200, so your EBT/EBIT = -200/-100 = 2. Any other examples?