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##### Asked by: Adelfa Brazete

business and finance debt factoring and invoice discounting# How do you calculate tie?

Last Updated: 6th February, 2020

**TIE**number is earnings before interest and taxes (EBIT) divided by the total interest payable on bonds and other debt. The result is a number that shows how many times a company could cover its interest charges with its pretax earnings.

**TIE**is also referred to as the interest coverage ratio.

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Besides, what is a good tie ratio?

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.

Also, what does a negative tie ratio mean? The **ratio** is indicative of solvency of the Company. The **ratio can** be used as an absolute measure of the financial position of the Company. The **ratio can** be used as a relative measure to compare two or more Companies. The **negative ratio** indicates that the Company is in serious financial trouble.

Furthermore, how do you increase tie ratio?

**Times interest earned ratio** is a measure of a company's solvency, i.e. its long-term financial strength. It can be **improved** by a company's debt level, obtaining loans at lower interest rate, **increasing** sales, reducing operating expenses, etc.

Does a times interest earned ratio less than 1.0 mean that creditors will not get paid interest?

A **times interest earned ratio** below **1.0** indicates that a company **is not** able to meet its **interest** obligations. Because a company's failure to meet **interest** payments usually results in default, **times interest earned is** of particular **interest** to lenders and bondholders and acts as a margin of safety.