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.
Sources
- Times Interest Earned Ratio: What It Is and How to Calculate - Investopedia - investopedia.com
- Times Interest Earned Ratio (TIE) | Formula + Calculator - Wall Street Prep - wallstreetprep.com
- Times Interest Earned Ratio Explained - Tipalti - tipalti.com
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