Asked by: Adelfa Brazete
business and finance debt factoring and invoice discounting

How do you calculate tie?

Last Updated: 6th February, 2020

The formula for a company's 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.

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What does debt ratio mean?

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Can Times Interest Earned Ratio negative?

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What is low interest coverage ratio?

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What does a negative interest expense mean?

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What does a times interest earned ratio of 3.5 mean?

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What does EBIT stand for?

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