10. Times-interest-earned (TIE) ratio The times-interest-earned (TIE) ratio shows how well a firm can cover its interest payments with operating income. Compare the income statements of Lost Pigeon Aviation and Happy Turtle Transporters Inc. and calculate the TIE ratio for each firm. Lost Pigeon Aviation Income Statement For the Year Ended on December 31 Net Sales (Millions of dollars) 700 280 Variable costs Fixed costs 245 $525.00 Total Operating costs 175 Operating Income (or EBIT) Less interest 50 125 Earnings before Taxes (EBT) Less taxes (40%) 50 Net Income Times Interest Earned (TIE) Happy Turtle Transporters Inc. Income Statement For the Year Ended on December 31 (Millions of dollars) Net Sales $1,000.00 250 Variable costs 450 Fixed costs Total Operating costs $700.00 Operating Income (or EBIT) 300 60 Less interest Earnings before Taxes (EBT) Less taxes (40%) 240 96 Net Income 144 Times Interest Earned (TIE) Complete the following statement, based on the calculations you have already made. Describe the relationship between the TIE ratios of the two companies. The companies have equal TIE ratios. Lost Pigeon Aviation has a greater TIE ratio than Happy Turtle Transporters Inc.. O Happy Turtle Transporters Inc. has a greater TIE ratio than Lost Pigeon Aviation. Which company is in better position to cover its interest payments, and therefore exhibits lower risk, than the other? Both companies are equally positioned to cover their interest payments. O Lost Pigeon Aviation is in a better position to cover its interest payment. O Happy Turtle Transporters Inc. is in a better position to cover its interest payment