Times Interest Earned (TIE)

Posted in Finance, Accounting and Economics Terms, Total Reads: 472

Definition: Times Interest Earned (TIE)

Times interest earned is defined as the measure for a firm’s capability to service its debt obligations. It is calculated as a ratio of firm’s EBIT to the total interest payable on bond and other debt obligations (EBIT of a firm is the earnings before interest and taxes). Both the numerator and the denominator are taken from the income statement. TIE is a solvency ratio.

TIE is also known as the Interest Coverage Ratio. A higher value of TIE indicates that the firm is generating sufficient funds for periodic debt payments to the borrowers. A lower value of TIE may result in higher interest rates from the lenders or difficulty in raising funds for operations. Generally a value of 2 or above is considered adequate while a value less than 1 means that the firm may not be capable of servicing its debt. Also, a very high value of TIE indicates that the firm is not taking advantage of the debt capital that might be available to it.

For example, if a firm’s EBIT is $500,000 and the Interest charges are $300,000. Then,


TIE = 500000/300000 = 1.67

Search & Explore : Management Dictionary

Browse the definition and meaning of more terms similar to Times Interest Earned (TIE). The Management Dictionary covers over 7000 business concepts from 6 categories.


Share this Page on:

Similar Definitions from same Category: