1. What is Times Interest Earned Ratio?

The Times Interest Earned (TIE) ratio measures a company's ability to meet its debt obligations based on its current income. It compares a company's earnings before interest and taxes (EBIT) to its interest expenses.

2. How Does the Calculator Work?

The calculator uses the TIE ratio formula:

Where:

• \( EBIT \) — Earnings Before Interest and Taxes (dollars)
• \( Interest\ Expense \) — Total interest expense (dollars)

Explanation: The ratio shows how many times a company could cover its interest charges with its pre-tax earnings.

3. Importance of TIE Ratio

Details: A higher ratio indicates better financial health as the company can more easily pay interest on outstanding debt. Lenders and investors use this to assess credit risk.

4. Using the Calculator

Tips: Enter EBIT and Interest Expense in dollars. Both values must be positive, and Interest Expense must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good TIE ratio?
A: Generally, a ratio of 2.0 or higher is considered acceptable, with 3.0+ being good. However, this varies by industry.

Q2: What does a low TIE ratio indicate?
A: A low ratio (below 1.5) suggests the company may have difficulty meeting its interest obligations, increasing default risk.

Q3: How does TIE differ from debt-to-equity ratio?
A: TIE measures ability to pay interest from earnings, while debt-to-equity compares total debt to shareholders' equity.

Q4: Can TIE be negative?
A: Yes, if EBIT is negative, indicating the company is losing money before paying interest.

Q5: Should TIE be used alone for credit analysis?
A: No, it should be used with other financial ratios for a complete picture of financial health.