Times Interest Earned (TIE) Ratio

TIE, short for Times Interest Earned, is a ratio used to show a company's ability to respect its debt obligations. The higher the TIE ratio, the more earnings it can commit to paying down debt. Alternately, lower TIE ratios — drifting somewhere near 1, 2, or 3 — the less revenue it can commit to covering even the interest on those debts. To ascertain the TIE ratio, partition the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) by its interest charges.

Features

• The formula for TIE is calculated as earnings before interest and taxes partitioned by total interest payable on debt.
• A better TIE number means a company has sufficient cash subsequent to paying its debts to keep on investing in the business.
• A company's TIE shows its ability to pay its debts.