You're looking at ratios that show how well a borrower can cover interest payments from earnings. Times Interest Earned (TIE) is a measure of how many times a company’s operating earnings can cover its interest expense. The standard formula is EBIT divided by Interest expense. EBIT represents earnings before financing costs and taxes, i.e., the income from core operations before debt service, so it directly reflects the money available to pay interest. The Interest Coverage Ratio (ICR) gauges the cushion above interest payments. In CLFP practice, it’s commonly calculated as either EBITDA or operating income divided by Interest expense. Using EBITDA emphasizes cash-like earning power by adding back depreciation and amortization, while using operating income (EBIT) ties the ratio to profitability from ongoing operations. Both formulations are widely used, with the choice depending on data availability and lender preference. Defining TIE with net income would mix in financing results and taxes, which aren’t the immediate funds available to cover debt service. Using cash flow alone for TIE would blur the distinction between operating performance and financing structure. For ICR, sticking to just one version (EBITDA only) would overlook scenarios where operating income provides a more relevant view, hence the flexible usage of either EBITDA or operating income.

Global cash flow assessment looks at every source that can provide payment to the lessor over the life of the lease. The lessee is the primary payer, but if there’s a guarantor—such as a parent company or bank guaranteeing the lease—the guarantor’s obligation can be called upon to meet payments if the lessee can’t. Including both parties gives a complete picture of cash-flow certainty and credit risk, which is essential for evaluating the transaction’s viability and how it should be priced. Relying only on the lessee ignores potential backup payments; relying only on the guarantor ignores the actual payment stream and the conditions under which the guarantor would step in. Therefore, both are included.

When earnings vary by season, the most reliable way to inform a credit decision is to test the forecast assumptions and run scenario analyses that reflect different seasonal patterns. This approach reveals how revenue, margins, working capital needs, and debt service behave not just in the peak period but through slower months as well. By exploring base, optimistic, and pessimistic cases, you can gauge liquidity cushions, covenant risk, and the borrower’s ability to weather off-peak periods. Relying on peak-season revenues alone overstates cash flow and understates risk, while ignoring seasonality or relying only on marketing forecasts fails to capture timing and cash implications. Bringing in tested assumptions and multiple scenarios gives a fuller, more realistic view of risk and capacity to meet obligations.

The main idea being tested is what distinguishes a non-profit corporation by its purpose and structure. A non-profit is formed to provide a service for the public good—such as a hospital or charity—and any surplus funds are reinvested into the mission rather than distributed to owners. That purpose is the defining feature, which is why this statement best describes a non-profit corporation. While non-profits often benefit from tax-exempt status and may have protections related to liability, those aspects are consequences of operating as a nonprofit and not the fundamental description. Also, the notion that a personal guarantee must be signed by a shareholder doesn’t fit, because non-profits don’t have shareholders or owners to guarantee loans.

Net worth carries over from one year to the next and is affected by what happens during the year: earnings after tax increase equity, while distributions (withdrawals) reduce it. To reconcile, you take last year’s net worth and adjust it by the year’s activity. The appropriate relationship is ending net worth equals beginning net worth plus the year’s net income after tax, minus any distributions. This captures both the inflow from earnings and the outflow from distributions, showing how equity expands or contracts over the year. The other options don’t reflect this year-to-year adjustment: one states net worth as assets minus liabilities (the static definition, not the reconciliation), another would incorrectly subtract net income, and the last unrealistically divides net income to a monthly figure for net worth.