What is times interest earned (tie)?

Times interest earned (TIE), also called interest coverage ratio, is a ratio that measures interest on debt obligations and a company's ability to pay them with its current earnings. Using this metric, you can learn how much and for how long a company can cover the interest expenses on its debts.

How to calculate times interest earned on income statement?

You can find most of the information to calculate the times interest earned on the income statement. Times interest earned = Earnings before interest and taxes / Total interest expense Read more: What Is Interest Coverage Ratio? Definition and Examples 1. Find the value of EBIT

What is the times interest earned ratio of a manufacturing company?

The manufacturing company's times interest earned ratio is: The TIE ratio of 1.15 is below the acceptable threshold of 2.5, so the investors may choose not to invest in the company, as it may default on meeting its debt obligations.

Why is a times interest earned ratio favorable?

A higher times interest earned ratio is favorable because it means that the company presents less of a risk to investors and creditors in terms of solvency. From an investor or creditor's perspective, an organization that has a times interest earned ratio greater than 2.5 is considered an acceptable risk.