Times Interest Earned
A solvency ratio measuring how many times a company can cover its interest expense with operating earnings.
What is TIE Ratio?
The times-interest-earned (TIE) ratio, also called the interest coverage ratio, measures a company's ability to service its debt by dividing earnings before interest and taxes (EBIT) by its annual interest expense. A higher ratio indicates a greater capacity to meet interest obligations. Lenders and credit analysts use TIE to assess default risk; a ratio below 1.5x is generally considered a warning sign.
Example
A company with $500 million in EBIT and $100 million in annual interest expense has a TIE ratio of 5.0x — it earns five times its interest obligations. This comfortable coverage supports investment-grade credit ratings and lower borrowing costs.