# Times interest earned (TIE)

The term "times interest earned (TIE)" is a financial ratio that measures a company's ability to make interest payments on its debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses. A higher ratio indicates a better ability to make interest payments and is generally considered to be a good thing.

What should times interest earned be? There is no one answer to this question as it depends on a number of factors, including the company's business model, the industry in which it operates, and its overall financial health. However, as a general rule of thumb, a company's times interest earned (TIE) ratio should be at least 1.5 in order to be considered financially healthy. This means that for every \$1 of interest expense, the company should earn at least \$1.50 in net income.

#### Is times interest earned the same as interest coverage?

No, "times interest earned" is not the same as "interest coverage." "Times interest earned" (also called the "interest coverage ratio") is a measure of a company's ability to make interest payments on its debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses. "Interest coverage" is a measure of a company's ability to make debt service payments. It is calculated by dividing a company's cash flow from operations by its interest expenses.

### What does times interest earned tell you about a company?

Times interest earned is a financial ratio that tells you how well a company is able to make its interest payments. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses.

A high times interest earned ratio indicates that a company is able to make its interest payments easily. This is because the company has a lot of earnings before interest and taxes. A low times interest earned ratio indicates that a company may have difficulty making its interest payments. This is because the company has very little earnings before interest and taxes.

##### How do I calculate times interest earned in Excel?

There are a few different ways that you can calculate times interest earned in Excel, depending on the information that you have available.

If you have the interest expense for a period of time and the net income for that same period of time, you can simply divide the two to get the times interest earned ratio.

For example, if interest expense for the period is \$10,000 and net income for the period is \$100,000, the times interest earned ratio would be 10,000 / 100,000, or 0.1.

You can also use the interest expense and the average interest-bearing debt for the period to calculate the times interest earned ratio.

For example, if interest expense for the period is \$10,000 and the average interest-bearing debt for the period is \$100,000, the times interest earned ratio would be 10,000 / 100,000, or 0.1.

If you have the interest expense and the earnings before interest and taxes (EBIT) for the period, you can use the following formula to calculate the times interest earned ratio:

Times Interest Earned Ratio = EBIT / Interest Expense

For example, if interest expense for the period is \$10,000 and earnings before interest and taxes (EBIT) is \$100,000, the times interest earned ratio would be 100,000 / 10,000, or 10. What does a times interest earned ratio of 10 times indicate? A times interest earned ratio of 10 times indicates that a company has enough earnings before interest and taxes (EBIT) to cover its interest payments ten times over. This is generally considered a very strong ratio, since it means that the company should be able to continue making its interest payments even if its income declines significantly.