What is Times Interest Earned Ratio?
Times Interest Earned Ratio Calculator: The Times Interest Earned (TIE) Ratio, also known as the Interest Coverage Ratio, is a financial metric used to measure a company's ability to pay its interest obligations on outstanding debt. The higher the ratio, the better the company's ability to cover interest expenses with its earnings before interest and taxes (EBIT).
How to Calculate Times Interest Earned Ratio?
The formula to calculate the Times Interest Earned Ratio is:
TIE Ratio = EBIT / Interest Expense
Where:
- EBIT: Earnings Before Interest and Taxes
- Interest Expense: Total Interest Obligations
For example, if a company's EBIT is $100,000 and its interest expense is $20,000, the Times Interest Earned Ratio is 5. This means the company earns five times its interest expense, showing good financial health.
Why is TIE Ratio Important?
The Times Interest Earned Ratio is important for investors, lenders, and analysts because it indicates:
- The company's ability to pay interest on debt
- Financial stability and creditworthiness
- The level of risk associated with lending to or investing in the company
A low TIE ratio may signal financial stress, while a high TIE ratio reflects stability and profitability.
Use Our Times Interest Earned Ratio Calculator
Our Times Interest Earned Ratio Calculator makes it easy to analyze your company's financial standing. Simply input your EBIT and total interest expense, and the calculator will provide the TIE ratio instantly.