Financial Glossary
Times Interest Earned Ratio (TIE)
The times interest earned ratio, also known as the interest coverage ratio, measures how many times a business could cover its interest expense using its earnings before interest and taxes. It is calculated by dividing earnings before interest and taxes by total interest expense. A higher ratio indicates the business generates ample earnings to service its debt comfortably.
Problem & Application
For real estate investors and operators carrying mortgages or equipment loans, the times interest earned ratio shows whether operating income provides a safe cushion over debt payments. Lenders frequently set a minimum TIE as a loan covenant, so a falling ratio can put a business in technical default even while it is still paying on time. Owners planning to take on additional debt should check how a new loan would affect this ratio before signing.
In Short
The times interest earned ratio is a direct measure of how safely a business carries its debt load. Keeping it well above lender minimums preserves both compliance and flexibility.