1. What is Times Interest Earned (TIE) Ratio?

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

2. How Does the Calculator Work?

The calculator uses the TIE formula:

Where:

• Monthly EBIT — Earnings Before Interest and Taxes (USD)
• Monthly Interest — Interest expense for the period (USD)

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

3. Importance of TIE Ratio

Details: A higher TIE ratio indicates better financial health and ability to service debt. Lenders and investors use this metric to assess creditworthiness.

4. Using the Calculator

Tips: Enter monthly EBIT and monthly interest expenses in USD. Both values must be positive (interest must be > 0).

5. Frequently Asked Questions (FAQ)

Q1: What is a good TIE ratio?
A: Generally, a ratio of 2.5 or higher is considered acceptable, while 3.0 or higher is preferred by lenders.

Q2: Can TIE ratio be negative?
A: Yes, if EBIT is negative, indicating the company is not generating enough revenue to cover its operating expenses.

Q3: How does TIE differ from debt-to-equity ratio?
A: TIE measures ability to pay interest, while debt-to-equity compares total debt to shareholders' equity.

Q4: Should TIE be calculated monthly or annually?
A: It can be calculated for any period, but monthly calculation helps monitor short-term financial health.

Q5: What if interest expense is zero?
A: The ratio becomes undefined (division by zero), indicating no debt obligations.