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Times interest earned

Times interest earned

Description

Times interest earned (TIE) ratio shows the financing safety level available to creditors. It measures whether the money the company earns is enough to cover its’ interest payments. Data needed to calculate this ratio is collected from income statement

Norms and limitations

If the ratio equals or goes below 1.5, doubts on company’s ability to cover its’ interest payment might occur.

If the value of TIE is below 1 it means that the company is unable to cover its’ interest payments, because it earns less money than the amount it has to pay as interests.

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