Times Interest Calculator

Times Interest Formula:

\[ \text{Times Interest} = \frac{\text{EBIT}}{\text{Interest Expense}} \]

Times Interest:

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1. What is Times Interest?

Times Interest Earned (TIE) ratio measures a company's ability to meet its debt obligations based on its current income. It compares a company's earnings before interest and taxes (EBIT) to its interest expenses.

2. How Does the Calculator Work?

The calculator uses the Times Interest formula:

\[ \text{Times Interest} = \frac{\text{EBIT}}{\text{Interest Expense}} \]

Where:

\( EBIT \) — Earnings Before Interest and Taxes (USD)
\( Interest Expense \) — Total interest payments (USD)

Explanation: The ratio shows how many times a company can cover its interest payments with its current earnings.

3. Importance of Times Interest

Details: A higher ratio indicates better financial health and lower risk of default. Lenders and investors use this metric to assess creditworthiness.

4. Using the Calculator

Tips: Enter EBIT and Interest Expense in USD. Both values must be positive, and Interest Expense cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Times Interest ratio?
A: Generally, a ratio of 2.0 or higher is considered acceptable, while 3.0 or higher is preferred. However, this varies by industry.

Q2: What does a low Times Interest ratio indicate?
A: A low ratio (below 1.0) suggests the company may have difficulty meeting its interest obligations from current earnings.

Q3: How does Times Interest differ from Debt Service Coverage Ratio?
A: Times Interest only considers interest payments, while DSCR includes both interest and principal repayments.

Q4: Can Times Interest be negative?
A: Yes, if EBIT is negative, indicating the company is losing money before paying interest.

Q5: How often should Times Interest be calculated?
A: It should be monitored quarterly for public companies and at least annually for all businesses.