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Asked by: Adelfa Brazete
business and finance debt factoring and invoice discountingHow do you calculate tie?
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.
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.
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.
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.