Times Interest Earned - TIE

Loading the player...

What does 'Times Interest Earned - TIE' mean

Times interest earned (TIE) is a metric used to measure a company's ability to meet its debt obligations. It is calculated by taking a company's earnings before interest and taxes (EBIT) and dividing it by the total interest payable on bonds and other contractual debt. It is usually quoted as a ratio and indicates how many times a company can cover its interest charges on a pretax basis. Failing to meet these obligations could force a company into bankruptcy.

Also referred to as "interest coverage ratio" and "fixed-charged coverage."

BREAKING DOWN 'Times Interest Earned - TIE'

Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rationale is that a company would yield greater returns by investing its earnings into other projects and borrowing at a lower cost of capital than what it is currently paying to meet its debt obligations.

RELATED TERMS
  1. Interest Coverage Ratio

    A debt ratio and profitability ratio used to determine how easily ...
  2. Capitalization Ratios

    Indicators that measure the proportion of debt in a company’s ...
  3. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  4. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company ...
  5. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense ...
  6. Long Term Debt To Total Assets ...

    A measurement representing the percentage of a corporation's ...
Related Articles
  1. Fundamental Analysis

    Explaining Times Interest Earned (TIE)

    Times interest earned, or TIE, measures a company’s ability to pay its debts.
  2. Professionals

    Financial Risk Ratios

    CFA Level 1 - Financial Risk Ratios. Learn the ratios behind a company's financial risk. Provides ratios for determining a company's use of debt and interest rate coverage.
  3. Fundamental Analysis

    How to Calculate a Coverage Ratio

    In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders.
  4. Budgeting

    3. Interest Coverage Ratio

    Companies provide distress signals long before they go under. Find out how to read them.
  5. Investing

    Debt Ratio

    The debt ratio divides a company’s total debt by its total assets to tell us how highly leveraged a company is—in other words, how much of its assets are financed by debt. The debt component ...
  6. Credit & Loans

    Debt Ratios: Interest Coverage Ratio

    By Richard Loth (Contact | Biography)The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt. The ratio is calculated by dividing a ...
  7. Investing Basics

    4 Leverage Ratios Used In Evaluating Energy Firms

    Analysts use specific leverage ratios to compare firms within an industry. A basic understanding of these ratios helps when evaluating oil and gas stocks.
  8. Investing Basics

    Understanding Leverage Ratios

    Large amounts of debt can cause businesses to become less competitive and, in some cases, lead to default. To lower their risk, investors use a variety of leverage ratios - including the debt, ...
  9. Investing

    Total Debt to Total Assets

    Total Debt to total assets, also called the debt ratio, is an accounting measurement that shows how much of a company’s assets are funded by borrowing. In business, borrowing is also called leverage.
  10. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
RELATED FAQS
  1. What measures should a company take if its times interest earned ratio is too high?

    Find out why and when a company's times interest earned ratio can be considered too high and what measures can be taken to ... Read Answer >>
  2. What is the difference between interest coverage ratio and TIE?

    Read about the times interest earned, also known as the interest coverage ratio. Find out why this is an important ratio ... Read Answer >>
  3. What is a good interest coverage ratio?

    Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's ... Read Answer >>
  4. If a company has a high debt to capital ratio, what else should I look at before ...

    Learn about some of the financial leverage and profitability ratios that investors can analyze to supplement examining the ... Read Answer >>
  5. What are the most common leverage ratios for evaluating a company?

    Learn more about some of the most common leverage ratios used by traders to determine whether a company is using debt in ... Read Answer >>
  6. What does a high times interest earned ratio signify with regard to a company's future?

    Learn how the times interest earned ratio affects the perception of solvency of a company, and what a high ratio can mean ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center