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##### Asked by: Ursulina Chukhnin

business and finance debt factoring and invoice discounting# What does Time Interest Earned Ratio Mean?

Last Updated: 8th June, 2020

**times interest earned ratio**is an indicator of a corporation's ability to meet the

**interest**payments on its debt. The

**times interest earned ratio**is calculated as follows: the corporation's income before

**interest**expense and income tax expense divided by its

**interest**expense.

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Furthermore, what is a good time interest earned 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.

One may also ask, how do you calculate Times Interest Earned Ratio? The **times interest earned ratio** is calculated by dividing income before **interest** and income taxes by the **interest** expense. Both of these figures can be found on the income statement. **Interest** expense and income taxes are often reported separately from the normal operating expenses for solvency analysis purposes.

Also know, is a higher or lower Times Interest Earned Ratio Better?

A **high ratio** means that a company is able to meet its **interest** obligations because **earnings** are significantly **greater** than annual **interest** obligations. A **lower times interest earned ratio** means **fewer earnings** are available to meet **interest** payments.

Is interest coverage the same as times interest earned?

**Times interest earned** (TIE) or **interest coverage** ratio is a measure of a company's ability to honor its debt payments. When the **interest coverage** ratio is smaller than one, the company is not generating enough cash from its operations EBIT to meet its **interest** obligations.