Time interest earned ratio (TIE), also known as interest coverage ratio, indicates how well a company can cover its interest payments on a pretax basis. The larger the time interest earned, the more capable the company is at paying the interest on its debt.

Time Interest Earned Ratio Formula

Use the following formula to calculate Time Interest Earned Ratio:

A lower times interest earned ratio means fewer earnings are available to meet interest payments. Failing to meet these obligations could force a company into bankruptcy. It is used by both lenders and borrowers in determining a company’s debt capacity.

Times Interest Earned Benchmarking Resources

For statistical information about industry financial ratios, please click the following website: www.bizstats.com and www.valueline.com.