Times interest earned (TIE)
Principles of Finance glossary · Principles Of Finance
Definition
EBIT divided by interest expense; a coverage ratio measuring debt-service capacity.
Times interest earned (TIE) in plain English
Before lending a company money, you want to know: can it comfortably cover the interest it owes? Times interest earned answers that by dividing the company's operating profit (EBIT — earnings before interest and taxes, basically the profit from running the business) by its yearly interest bill. A result of 5 means the company earns five times what it needs just to pay interest — plenty of cushion — while a number near 1 means it's barely scraping by and one bad year could spell trouble. It's like checking whether someone's paycheck is five times their loan payment or dangerously close to it.
Also called: TIE
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