Times Interest Earned (TIE)

Times Interest Earned (TIE), also known as the interest coverage ratio, is a financial metric used to measure a company's ability to meet its debt obligations. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses. A higher TIE ratio indicates that a company can comfortably cover its interest payments with its earnings, signaling financial strength. Conversely, a lower ratio suggests potential difficulty in meeting debt obligations.

Example

A company with an EBIT of $10 million and annual interest expenses of $2 million has a TIE ratio of 5, meaning it earns five times what is needed to cover its interest payments.