Times Interest Earned Ratio Calculator
Assess company's ability to meet interest obligations and financial health
Calculate Times Interest Earned Ratio
Company's earnings before interest and tax expenses
Total annual interest payments on debt
Times Interest Earned Ratio Results
Formula used: TIE Ratio = EBIT ÷ Total Interest Expense
Calculation: $0 ÷ $0 = 0.00x
Financial Risk Analysis
Example Calculation
Beta Electronics Company
Company: Beta Electronics
EBIT: $750,000
Total Interest Expense: $150,000
Industry: Technology Manufacturing
Calculation
TIE Ratio = $750,000 ÷ $150,000
TIE Ratio = 5.0x
Interpretation: Beta Electronics can cover its interest expenses 5 times over, indicating excellent financial health and low credit risk.
TIE Ratio Benchmarks
Below 1.5x
High risk - Difficulty meeting interest obligations
1.5x - 2.0x
Minimum acceptable - Higher financial risk
2.0x - 3.0x
Acceptable - Moderate risk level
3.0x - 5.0x
Strong - Good financial position
Above 5.0x
Excellent - Very low financial risk
Industry Considerations
Capital-Intensive Industries
Utilities, telecommunications - Lower ratios acceptable (2-4x)
Stable Industries
Consumer staples, healthcare - Moderate ratios (3-6x)
Cyclical Industries
Technology, retail - Higher ratios preferred (5x+)
Analysis Tips
Compare with industry peers and historical trends
Consider debt structure and maturity profiles
Analyze consistency over multiple periods
Use alongside other financial ratios
Understanding Times Interest Earned Ratio
What is Times Interest Earned Ratio?
The Times Interest Earned (TIE) ratio measures a company's ability to fulfill its debt obligations by comparing earnings before interest and taxes (EBIT) to total interest expenses. It indicates how many times a company can cover its interest payments with its current earnings.
Why is TIE Ratio Important?
- •Assesses creditworthiness and default risk
- •Helps investors evaluate financial stability
- •Used by lenders in loan approval decisions
- •Indicates ability to take on additional debt
Formula Explanation
TIE Ratio = EBIT ÷ Total Interest Expense
- EBIT: Earnings Before Interest and Taxes
- Total Interest: Annual interest payments on all debt
- Result: Number of times interest can be covered
Note: Higher ratios indicate better financial health, but extremely high ratios may suggest the company is too conservative with debt financing.
Low TIE Ratio (Below 2.0x)
Indicates financial distress and higher probability of default. Company may struggle during economic downturns.
Moderate TIE Ratio (2.0x - 4.0x)
Shows adequate but not exceptional ability to service debt. Industry comparison is crucial at this level.
High TIE Ratio (Above 4.0x)
Demonstrates strong financial health and low credit risk. Company has substantial cushion for interest payments.