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What is times interest earned?

Understand the Problem

The question is asking about the financial metric known as Times Interest Earned (TIE), which is used to measure a company's ability to meet its debt obligations based on its earnings. It reflects how many times a company can pay its interest expenses with its earnings before interest and taxes (EBIT).

Answer

A measure of a company's ability to meet its debt obligations based on its current income.

The final answer is a measure of a company's ability to meet its debt obligations based on its current income.

Answer for screen readers

The final answer is a measure of a company's ability to meet its debt obligations based on its current income.

More Information

The Times Interest Earned (TIE) ratio, also known as the interest coverage ratio, is a financial metric that shows how well a company can cover its interest obligations with its earnings before interest and taxes (EBIT). A higher TIE ratio indicates a stronger ability to pay interest expenses.

Tips

A common mistake is confusing the TIE ratio with liquidity ratios, which measure the ability to meet short-term obligations. The TIE ratio specifically focuses on interest obligations.

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