Time Interest Earned (TIE) Ratio Calculator

The Time Interest Earned (TIE) Ratio, also called the Interest Coverage Ratio, is a financial metric that shows how easily a company can meet its interest obligations from its operating income. A higher ratio means the company has more earnings available to cover interest expenses, indicating financial stability.

Our Time Interest Earned Ratio Calculator helps you quickly determine this ratio by entering just two values: Earnings Before Interest and Taxes (EBIT) and Interest Expense.

Formula for Time Interest Earned (TIE) Ratio

The basic formula is:

$\text{TIE Ratio}=\frac{\text{EBIT}}{\text{Interest Expense}}$

Step 1: Calculate EBIT

EBIT stands for Earnings Before Interest and Taxes. It is the company’s operating profit before financial costs are deducted.

Step 2: Identify Interest Expense

Interest Expense is the total cost a company pays on its borrowed funds (loans, bonds, etc.).

No special calculation is needed—this value comes directly from the company’s financial statements.

$\text{Interest Expense}=\text{Total Interest Payments on Debt}$

Step 3: Calculate TIE Ratio

Now, divide EBIT by Interest Expense:

$\text{TIE Ratio}=\frac{EBIT}{InterestExpense}$

Example Calculation

Suppose a company has:

• EBIT = $200,000
• Interest Expense = $50,000

$\text{TIE Ratio}=\frac{200,000}{50,000}=4$​​​​​​​

This means the company earns 4 times its interest expense, which shows a comfortable financial position.

Why Is the TIE Ratio Important?

• High Ratio (e.g., 5 or more): Strong ability to pay interest, low financial risk.
• Low Ratio (e.g., below 2): Company may struggle to pay interest, higher risk of default.
• Balanced Ratio: Depends on the industry; capital-intensive industries may have lower ratios.