Times interest earned

Times interest earned

"Times interest earned (TIE)" or "interest coverage ratio" is a measure of a company's ability to honor its debt payments. It may be calculated as either EBIT or EBITDA divided by the total interest payable.

mbox{Times-Interest-Earned} = frac {mbox{EBIT or EBITDA {mbox{Interest Charges

ee also

*Financial ratio
*Financial leverage
*EBIT
*EBITDA
*Debt service coverage ratio

Times Interest Earned or Interest Coverage is a great tool when measuring a company's ability to meet its debt obligations. When Interest Coverge is less then 1x, the Company is not generating enough cash from its operations EBITDA (for more on EBITDA please visit http://www.thecompanypulse.com/blog.aspx?id=1) to meet its interest obligations. The Company would then have to either use cash on hand to make up the difference or borrow funds. Typically it is a warning sign when interest coverage falls below 2.5x.

External links

* [http://www.answers.com/topic/interest-coverage-ratio-1?cat=biz-fin Times Interest Earned — TIE]
* [http://www.gsu.edu/~fnccwh/pdf/f10.pdf Chapter 10 Analysis of Financial Statements]


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