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# Time Interest Earned Ratio Analysis

Modified on 2012/08/16 12:42 by swathen Categorized as Uncategorized
EBITDA Definition
Debt Ratio
Financial Ratios
Fixed Charge Coverage Ratio
Debt to Equity Ratio
Long Term Debt to Total Asset Ratio Analysis
Current Ratio

# Time Interest Earned Ratio Analysis¶

## Time Interest Earned Ratio Definition¶

Time interest earned ratio (TIE), also known as interest coverage ratio, indicates how well a company can cover its interest payments on a pretax basis. The larger the time interest earned, the more capable the company is at paying the interest on its debt.

## Time Interest Earned Ratio Formula¶

Times Interest Earned Ratio = EBIT / Total interest

## Time Interest Earned Ratio Calculation¶

EBIT: earnings before interest and taxes. Example: a company has \$10,000 in EBIT, and \$1,000 in interest payments. Times interest earned ratio： 10,000 / 1,000 = 10

This means that a company has earned ten times its interest charges.

## Times Interest Earned Ratio Analysis¶

Times interest earned ratio measures a company’s ability to continue to service its debt. It is an indicator to tell if a company is running into financial trouble. A high ratio means that a company is able to meet its interest obligations because earnings are significantly greater than annual interest obligations. However, a high ratio can also mean that a company has an undesirably low level of leverage or pays down too much debt with earnings that could be used for other investment opportunities to get higher rate of return.

A lower times interest earned ratio means fewer earnings are available to meet interest payments. Failing to meet these obligations could force a company into bankruptcy. It is used by both lenders and borrowers in determining a company’s debt capacity.

## Times Interest Earned Benchmarking Resources¶

For statistical information about industry financial ratios, please click the following website: www.bizstats.com and www.valueline.com.