How to find times interest earned?
Understand the Problem
The question is asking for the method to calculate the times interest earned ratio, which is a measure of a company's ability to meet its debt obligations. This typically involves understanding the company's earnings before interest and taxes (EBIT) and the interest expense.
Answer
EBIT divided by total interest expense.
The formula for calculating Times Interest Earned (TIE) is EBIT (earnings before interest and taxes) divided by total interest expense.
Answer for screen readers
The formula for calculating Times Interest Earned (TIE) is EBIT (earnings before interest and taxes) divided by total interest expense.
More Information
A higher Times Interest Earned ratio indicates a company is more capable of meeting its interest obligations, signifying lower risk for creditors.
Tips
A common mistake is using net income instead of EBIT. Ensure the interest expense is for the same period as the EBIT to maintain accuracy.
Sources
- Times Interest Earned - Ratio, Calculate, Formula - corporatefinanceinstitute.com
- Times Interest Earned Ratio (TIE) | Formula + Calculator - wallstreetprep.com
- Times Interest Earned Ratio: What It Is and How to Calculate - investopedia.com
