Times Interest Earned - TIE

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DEFINITION of 'Times Interest Earned - TIE'

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."

INVESTOPEDIA EXPLAINS '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.

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RELATED FAQS
  1. What measures should a company take if its times interest earned ratio is too high?

    There is no universally definable threshold for a times interest earned ratio that is too high. Each business must balance ... Read Full Answer >>
  2. Who exactly needs to be paying attention to the time interest earned ratio of a company?

    Creditors pay the most attention to times interest earned (TIE). A borrower with a high times interest earned ratio is less ... Read Full Answer >>
  3. What does a high times interest earned ratio signify with regard to a company's future?

    A common solvency ratio utilized by both creditors and investors is the times interest earned ratio. Often referred to as ... Read Full Answer >>
  4. How can I calculate the times interest earned in Excel?

    Times interest earned (TIE), also known as the interest coverage ratio, can easily be calculated in any version of Microsoft ... Read Full Answer >>
  5. What is the relationship between the hurdle rate (MARR) and the Internal Rate of ...

    In capital budgeting, projects are often evaluated by comparing the internal rate of return, or IRR, on a project to the ... Read Full Answer >>
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    There are several different effective interest rates. In accounting, the effective interest method examines the relationship ... Read Full Answer >>
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