What Is Times Interest Earned?
Times interest earned is a way of measuring a company’s ability to pay off the interest accruing on its loans. It is expressed as a ratio that is calculated by taking the company’s earnings prior to interest and taxes and dividing it by the amount of interest owed. Also known as the interest coverage ratio, times interest earned, or TIE, provides a method for investors to measure a company’s financial stability. An extremely low ratio means that a company may not be able to take care of its interest payments in the short term while still having capital in reserve for day-to-day operations or emergency expenses.
