Times Interest Earned Ratio Calculator

More about this times interest earned ratio calculator that will allow to get a step-by-step calculations.

Time Interest Earned Ratio Formula

The Times Interest Earned Ratio corresponds to the ratio between the EBIT and the interest. This ratio is a measure of long term solvency, and it indicates the number many times earnings can pay for the interest owed:

\[ TIER = \displaystyle \frac{EBIT}{\text{Interest}}\]

Example: Calculation of Times Interest Earned Ratio

Question: Consider a firm that has earnings before interest and taxes of $43,000, and it has an interest due of $3,400. Compute the corresponding Times Interest Earned Ratio.

Solution:

This is the information we have been provided with:

• The earnings before interest and taxes is \(EBIT = 43000\) and the interest \(Interest = 3400\).

Hence, the times interest earned ratio \(TIER\) is computed using the following formula:

\[ \begin{array}{ccl} TIER & = & \displaystyle \frac{EBIT}{\text{Interest}} \\\\ \\\\ & = & \displaystyle \frac{43000}{3400} \\\\ \\\\ & = & 12.65 \end{array} \]

Therefore, the times interest earned ratio, for the given earnings before interest and taxes of \(EBIT = 43000\), and interest of \(3400\), is equal to \(TIER = 12.65 \). This means that firm's earnings before interest and taxes are \(12.65\) times its due interest.

Calculation of Commonly Used Financial Ratios

The Times Interest Earned Ratio is a commonly used financial ratio in the study of corporate finance. You can find other financial ratio calculator in our site, such as our current ratio , quick ratio , inventory turnover calculator.

A tightly related profit ratio is the Cash Coverage Ratio , which usually reported along with the Times Interest Earned Ratio.