Times Interest Earned (TIE)

Posted in Finance, Accounting and Economics Terms, Total Reads: 818

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

Hence, this concludes the definition of Times Interest Earned (TIE) along with its overview.

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.

Search & Explore : Management Dictionary

Share this Page on:
Facebook ShareTweetShare on G+Share on Linkedin