1. What is Time Interest Earned?

The Time Interest Earned (TIE) ratio, also known as interest coverage ratio, measures a company's ability to meet its interest payments on outstanding debt. It indicates how many times a company can cover its interest expenses with its earnings before interest and taxes.

2. How Does the Calculator Work?

The calculator uses the TIE formula:

Where:

• \( EBIT \) — Earnings Before Interest and Taxes ($)
• \( Interest\ Expense \) — Total interest payments on debt ($)

Explanation: The ratio shows how easily a company can pay interest on outstanding debt from its operating earnings.

3. Importance of TIE Ratio

Details: A higher TIE ratio indicates better financial health and lower risk for lenders and investors. It helps assess a company's solvency and ability to service its debt obligations.

4. Using the Calculator

Tips: Enter EBIT and Interest Expense in dollars. Both values must be positive, with interest expense greater than zero for meaningful calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good TIE ratio?
A: Generally, a TIE ratio above 2.5 is considered acceptable, while ratios above 3.0 indicate strong financial health. Industry standards may vary.

Q2: What does a low TIE ratio indicate?
A: A low TIE ratio (below 1.5) suggests the company may have difficulty meeting its interest obligations, indicating higher financial risk.

Q3: How does TIE differ from debt service coverage ratio?
A: TIE only considers interest payments, while debt service coverage ratio includes both interest and principal repayments in its calculation.

Q4: Can TIE ratio be too high?
A: Extremely high TIE ratios may indicate the company is too conservative with debt and missing growth opportunities through leverage.

Q5: How often should TIE ratio be calculated?
A: It should be calculated quarterly and annually as part of regular financial analysis to monitor debt servicing capacity over time.