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13 Φεβ 2024 · Formula and Calculation of the Times Interest Earned (TIE) Ratio. Assume, for example, that XYZ Company has $10 million in 4% debt outstanding and $10 million in common stock. The company...
9 Μαΐ 2022 · The time interest earned (TIE) ratio helps investors determine if a company can meet debt obligations with current income. Learn about how it’s calculated.
How to interpret the times interest earned ratio. A high TIE ratio means that the business is generating more than enough earnings to pay all interest expenses. If the TIE ratio decreases, the company may be generating lower earnings or issuing more debt (or both). In the example above, East Coast generated $2 million less in EBIT during 2023 ...
The Times Interest Earned (TIE) ratio measures a company’s ability to meet its debt obligations on a periodic basis. This ratio can be calculated by dividing a company’s EBIT by its periodic interest expense.
The formula is straightforward: This ratio reflects how many times a company’s earnings can cover its interest obligations. A higher TIE ratio indicates that a company is more capable of covering its interest expenses, which is generally seen as a sign of financial stability.
16 Απρ 2024 · Then, use the formula: TIE Ratio = EBIT / Interest Expense. Benchmark the ratio: Compare the calculated TIE ratio against industry standards or competitors to gauge the company's performance. A higher TIE ratio typically indicates a stronger position.
The formula is as simple as: Times Interest Earned Ratio = EBIT / Interest Expense. For example, if a company has an EBIT of $2,000,000 and its Interest Expense totals $500,000, the Times Interest Earned Ratio would be calculated as follows: TIE Ratio = $2,000,000/500,000 = 4.
