Times Interest Earned Ratio — Smart Financial Analysis
Calculate and analyze a company's ability to meet interest obligations. TIE = EBIT ÷ Interest Expense.
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TIE = EBIT / Interest Expense. Below 1: can't cover interest (distress). Lenders use TIE to assess default risk. TIE measures ability to pay interest (flow metric).
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Why: TIE = EBIT / Interest Expense. It measures how many times a company can cover its interest payments with earnings. TIE of 5 means the company earns 5× its interest obligations. ...
How: Enter EBIT ($), Interest Expense ($), Revenue ($) to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
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For educational purposes only — not financial advice. Consult a qualified advisor before making decisions.
💡 Money Facts
Times Interest Earned Ratio analysis is used by millions of people worldwide to make better financial decisions.
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The Times Interest Earned ratio is one of the most critical metrics lenders and credit analysts use to assess a company's ability to service its debt obligations. A TIE below 1 signals immediate distress — the company cannot cover interest payments from operating earnings. The S&P 500 median TIE of 8-10 reflects the generally strong earnings coverage of large-cap companies, but highly leveraged industries routinely operate at lower ratios.
Sources: CFA Institute, Moody's, S&P Global, Investopedia.
Key Takeaways
- • TIE = EBIT ÷ Interest Expense — measures interest coverage capacity
- • TIE < 1 means the company cannot cover interest from operating earnings
- • Lenders typically require TIE of 2.5+ for loan approval
- • S&P 500 median TIE is 8-10; industry norms vary widely
Did You Know?
How Does TIE Work?
The Formula
TIE = EBIT ÷ Interest Expense. EBIT (Earnings Before Interest and Taxes) is operating income. Divide by annual interest expense to get how many times earnings cover interest.
Interpretation
TIE of 5 means the company earns 5× its interest obligations. Higher is better. Below 1 indicates the company cannot pay interest from operating earnings — a distress signal.
Industry Context
Capital-intensive industries (utilities, real estate) have lower typical TIE. Tech and services often have higher TIE. Always compare to industry benchmarks.
Expert Tips
TIE Ratio Benchmarks by Industry
| Industry | Typical TIE | Notes |
|---|---|---|
| Technology | 10-20+ | Low debt, high margins |
| Manufacturing | 4-8 | Moderate leverage |
| Utilities | 2-4 | High debt, stable income |
| Real Estate | 1.5-3 | High leverage typical |
| S&P 500 Median | 8-10 | Large-cap average |
Frequently Asked Questions
What is the Times Interest Earned ratio?
TIE = EBIT / Interest Expense. It measures how many times a company can cover its interest payments with earnings. TIE of 5 means the company earns 5× its interest obligations. Also called "interest coverage ratio."
What is a good TIE ratio?
Below 1: can't cover interest (distress). 1-2: risky. 2-3: adequate. 3-5: healthy. Above 5: strong. S&P 500 median: ~8-10. Lenders typically want 2.5+ for loan approval. Higher is generally better.
Why is TIE important for lenders?
Lenders use TIE to assess default risk. Low TIE signals the company may struggle to make interest payments. Banks often set TIE covenants (minimum ratios) in loan agreements. Falling below triggers default.
How does TIE differ from debt-to-equity?
TIE measures ability to pay interest (flow metric). D/E measures how much debt vs equity (stock metric). A company can have high D/E but high TIE if it's very profitable. Both are important for credit analysis.
What if TIE is negative?
Negative TIE means negative EBIT (operating loss). The company can't cover any interest from operations. This is a red flag indicating potential bankruptcy risk unless the company has cash reserves or other income.
Does TIE vary by industry?
Significantly. Utilities: 2-4 (high debt, stable income). Tech: 10-20+ (low debt, high margins). Real estate: 1.5-3 (high leverage). Manufacturing: 4-8. Always compare TIE to industry peers, not absolute standards.
Key Statistics
Official Data Sources
⚠️ Disclaimer: This calculator is for educational purposes only. TIE ratios should be interpreted in context of industry, company size, and economic conditions. Not financial advice. Consult a professional for credit or investment decisions.
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