{"id":31828,"date":"2025-08-13T11:25:45","date_gmt":"2025-08-13T16:25:45","guid":{"rendered":"https:\/\/breakingintowallstreet.com\/?post_type=biws_kb&#038;p=31828"},"modified":"2025-12-17T00:18:40","modified_gmt":"2025-12-17T05:18:40","slug":"times-interest-earned-tie","status":"publish","type":"biws_kb","link":"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/times-interest-earned-tie\/","title":{"rendered":"The Times Interest Earned (TIE) Ratio: Real-World Risk or Spreadsheet Swindle?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-flat ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">The Times Interest Earned (TIE) Ratio: Real-World Risk or Spreadsheet Swindle?<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/times-interest-earned-tie\/#How_Do_You_Define_the_Times_Interest_Earned_Ratio_Why_Does_Everyone_Do_It_Differently\">How Do You Define the Times Interest Earned Ratio? Why Does Everyone Do It Differently?<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/times-interest-earned-tie\/#What_Does_the_Times_Interest_Earned_Ratio_Tell_You_Is_It_Useful_or_Misleading\">What Does the Times Interest Earned Ratio Tell You? Is It Useful or Misleading?<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/times-interest-earned-tie\/#How_Can_Companies_Boost_Their_Times_Interest_Earned_Ratios\">How Can Companies Boost Their Times Interest Earned Ratios?<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/times-interest-earned-tie\/#To_TIE_or_Not_to_TIE_Final_Thoughts_on_the_Times_Interest_Earned_Ratio\">To TIE or Not to TIE: Final Thoughts on the Times Interest Earned Ratio<\/a><\/li><\/ul><\/nav><\/div>\n\n<blockquote><p><strong>Times Interest Earned (TIE) Definition:<\/strong> The Times Interest Earned Ratio, also known as the Interest Coverage Ratio, measures how well a company\u2019s core-business earnings can pay for the interest expense on its Debt and represents its credit risk and additional capacity for Debt issuances; there are many different definitions because there are different types of \u201cearnings\u201d and \u201cinterest expense.\u201d<\/p><\/blockquote>\n<p>Some sources say that the \u201ccore-business earnings\u201d should be <a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/ebitda\/\" target=\"_blank\" rel=\"noopener\">EBITDA<\/a>, or Earnings Before Interest, Taxes, Depreciation &amp; Amortization, while others state that it should be <a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/ebit-operating-income\/\" target=\"_blank\" rel=\"noopener\">EBIT<\/a>, or Earnings Before Interest &amp; Taxes, to be more conservative:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31829 size-full\" title=\"Times Interest Earned Definitions\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111831\/01-TIE-Definitions.jpg\" alt=\"Times Interest Earned Definitions\" width=\"1785\" height=\"712\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111831\/01-TIE-Definitions.jpg 1785w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111831\/01-TIE-Definitions-300x120.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111831\/01-TIE-Definitions-1024x408.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111831\/01-TIE-Definitions-768x306.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111831\/01-TIE-Definitions-1536x613.jpg 1536w\" sizes=\"(max-width: 1785px) 100vw, 1785px\" \/><\/p>\n<p>For example, if a company has $10 million in EBITDA and $8 million in EBIT, and its Interest Expense is currently $2 million, its TIE is either 5.0x or 4.0x.<\/p>\n<p>\u201cReasonable\u201d and \u201ctargeted\u201d levels vary by industry and company stage, but in most cases, a TIE in the 4 \u2013 5x range is healthy and indicates that the company can easily service its Debt.<\/p>\n<p>Assuming its other credit stats, such as the Leverage Ratio and <a href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/fixed-charge-coverage-ratio-fccr\/\" target=\"_blank\" rel=\"noopener\">Fixed Charge Coverage Ratio (FCCR)<\/a>, also look good, this company should be able to raise new Debt easily.<\/p>\n<p>If this same company had a much lower TIE, such as 2.0x or below, it wouldn\u2019t necessarily be a \u201cred flag,\u201d but it would indicate a reduced ability to issue new Debt:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31830 size-full\" title=\"Low Times Interest Earned Ratio\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111904\/02-TIE-Ratio-Low.jpg\" alt=\"Low Times Interest Earned Ratio\" width=\"1785\" height=\"689\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111904\/02-TIE-Ratio-Low.jpg 1785w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111904\/02-TIE-Ratio-Low-300x116.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111904\/02-TIE-Ratio-Low-1024x395.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111904\/02-TIE-Ratio-Low-768x296.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111904\/02-TIE-Ratio-Low-1536x593.jpg 1536w\" sizes=\"(max-width: 1785px) 100vw, 1785px\" \/><\/p>\n<p>The TIE or Interest Coverage Ratio is widely used in everything from small-business credit assessments to <a href=\"https:\/\/breakingintowallstreet.com\/kb\/debt-equity\/debt-vs-equity-analysis\/\" target=\"_blank\" rel=\"noopener\">debt vs. equity analysis<\/a>, <a href=\"https:\/\/breakingintowallstreet.com\/kb\/leveraged-buyouts-and-lbo-models\/\" target=\"_blank\" rel=\"noopener\">leveraged buyout models<\/a>, and <a href=\"https:\/\/breakingintowallstreet.com\/kb\/real-estate-modeling\/\" target=\"_blank\" rel=\"noopener\">real estate models<\/a>.<\/p>\n<p><strong>The calculations differ, but the concept is the same: It always measures how easily a company can pay for its Interest Expense and, therefore, how well it can service its current Debt and potentially issue new Debt.<\/strong><\/p>\n<h3><strong>Files &amp; Resources:<\/strong><\/h3>\n<ul>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com\/Financial-Statement-Analysis\/TIE\/Times-Interest-Earned-LBO-Model.xlsx\" target=\"_blank\" rel=\"noopener\">Simple LBO Model &#8211; Times Interest Earned (TIE) Calculations (XL)<\/a><\/li>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com\/Financial-Statement-Analysis\/TIE\/Times-Interest-Earned-Slides.pdf\" target=\"_blank\" rel=\"noopener\">Times Interest Earned (TIE) &#8211; Slides (PDF)<\/a><\/li>\n<\/ul>\n<h3><strong>Video Table of Contents:<\/strong><\/h3>\n<ul>\n<li><strong>0:00:<\/strong> Introduction<\/li>\n<li><strong>5:34:<\/strong> Part 1: TIE Definitions in a Simple LBO Model<\/li>\n<li><strong>10:51:<\/strong> Part 2: What Does TIE Tell You?<\/li>\n<li><strong>13:07:<\/strong> Part 3: How Companies Can Boost Their TIEs<\/li>\n<li><strong>14:31:<\/strong> Recap and Summary<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"How_Do_You_Define_the_Times_Interest_Earned_Ratio_Why_Does_Everyone_Do_It_Differently\"><\/span><strong>How Do You Define the Times Interest Earned Ratio? Why Does Everyone Do It Differently?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>There are different definitions because of different standards, which vary by group and firm, and because of <strong>incentives<\/strong>.<\/p>\n<p>For example, borrowers often want to use <strong>strict definitions<\/strong> of \u201cInterest Expense\u201d and <strong>broad definitions<\/strong> of \u201cEarnings.\u201d<\/p>\n<p>If the denominator is smaller and the numerator is bigger, that always improves the TIE Ratio and makes the company look better.<\/p>\n<p>A few complications with Interest Expense may include:<\/p>\n<ul>\n<li><strong>Cash vs. Non-Cash (PIK) Interest:<\/strong> If the company has accrued or <a href=\"https:\/\/breakingintowallstreet.com\/kb\/leveraged-buyouts-and-lbo-models\/pik-interest\/\" target=\"_blank\" rel=\"noopener\">PIK Interest<\/a>, do you count that? Or is it only the <em>Cash Interest Expense<\/em> in the period?<\/li>\n<li><strong>Net Interest:<\/strong> If the company also earns Interest Income on its Cash balance, do you net that against the Interest Expense or ignore it and use only the Interest Expense?<\/li>\n<li><strong>Lease Interest:<\/strong> Especially under IFRS, <a href=\"https:\/\/mergersandinquisitions.com\/lease-accounting\/\" target=\"_blank\" rel=\"noopener\">many companies have significant \u201cLease Interest\u201d<\/a> since they split the Lease Expense into Depreciation and Interest components. Lease Interest <em>is<\/em> a cash expense, but Leases are not quite Debt, so the treatment is debatable.<\/li>\n<li><strong>Non-Cash Interest Components:<\/strong> If the company has Debt with issuance fees or <a href=\"https:\/\/breakingintowallstreet.com\/kb\/debt-equity\/original-issue-discount-debt\/\" target=\"_blank\" rel=\"noopener\">Debt that was issued at a discount<\/a> or premium to par value, these items <strong>amortize<\/strong> over time and are typically counted within the Interest Expense. But the cash costs are incurred upfront; the amortization itself is non-cash.<\/li>\n<\/ul>\n<p>The argument <em>against <\/em>counting these items in the \u201cInterest Expense\u201d is simple: They are not cash expenses, so they do not impair the company\u2019s ability to service its Debt in the current period.<\/p>\n<p>The argument <em>for<\/em> counting them is that they <em>do<\/em> tell you something about the company\u2019s credit quality and ability to raise additional Debt.<\/p>\n<p>For example, if a company has $100 in Interest Expense, with $70 in Cash Interest, $20 in PIK Interest, and $10 from an Original Issue Discount Amortization, these non-cash components tell you that the company\u2019s <strong>credit risk is higher than expected.<\/strong><\/p>\n<p>If the lenders had been satisfied with earning $70 in Cash Interest on their Debt, why would the company have offered PIK Interest <em>and<\/em> sold this Debt at a substantial discount?<\/p>\n<p>The investors wanted more to compensate them for the risk, so it is fair to count these components toward the Interest Expense and numbers like the <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/cost-of-debt\/\" target=\"_blank\" rel=\"noopener\">Cost of Debt<\/a>.<\/p>\n<p>The numerator used in the TIE Ratio is also open to interpretation.<\/p>\n<p>EBITDA is the most aggressive metric, while EBIT is more conservative since it deducts Depreciation &amp; Amortization, partially reflecting the company\u2019s capital costs.<\/p>\n<p>Some argue that EBITDA is better for \u201ccapital-intensive firms,\u201d while EBIT is better for asset-light companies, but this misses the point.<\/p>\n<p><strong>EBIT is always less than or equal to EBITDA for all companies, so EBIT is always a more conservative metric.<\/strong><\/p>\n<p>You should <em>not<\/em> adjust for Cash Flow Statement line items, such as the <a href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/change-in-working-capital\/\" target=\"_blank\" rel=\"noopener\">Change in Working Capital<\/a> or Capital Expenditures, in the numerator of this Times Interest Earned number.<\/p>\n<p>If you start doing that, you might as well use the <a href=\"https:\/\/breakingintowallstreet.com\/kb\/project-finance\/debt-service-coverage-ratio\/\" target=\"_blank\" rel=\"noopener\">Debt Service Coverage Ratio<\/a> or the Fixed Charge Coverage Ratio, as they are linked more closely to cash flows than earnings.<\/p>\n<p>You can see how much the exact definitions matter in the examples below:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31831 size-full\" title=\"Times Interest Earned Ratio Below 2.0x\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111935\/03-TIE-Below-2x.jpg\" alt=\"Times Interest Earned Ratio Below 2.0x\" width=\"1782\" height=\"834\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111935\/03-TIE-Below-2x.jpg 1782w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111935\/03-TIE-Below-2x-300x140.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111935\/03-TIE-Below-2x-1024x479.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111935\/03-TIE-Below-2x-768x359.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13111935\/03-TIE-Below-2x-1536x719.jpg 1536w\" sizes=\"(max-width: 1782px) 100vw, 1782px\" \/><\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31832 size-full\" title=\"Times Interest Earned Ratio Based on EBITDA\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112002\/04-TIE-EBITDA.jpg\" alt=\"Times Interest Earned Ratio Based on EBITDA\" width=\"1774\" height=\"822\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112002\/04-TIE-EBITDA.jpg 1774w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112002\/04-TIE-EBITDA-300x139.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112002\/04-TIE-EBITDA-1024x474.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112002\/04-TIE-EBITDA-768x356.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112002\/04-TIE-EBITDA-1536x712.jpg 1536w\" sizes=\"(max-width: 1774px) 100vw, 1774px\" \/><\/p>\n<div class='code-block code-block-2' style='margin: 8px 0; clear: both;'>\n<div class=\"kb-adinsert-modal\">\n    <div class=\"kb-adinsert-top\">\n      <div class=\"media\">\n          <img decoding=\"async\" class=\"alignnone size-full wp-image-28448\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/04\/24164120\/adv-fm-tile.png\" alt=\"PowerPoint Pro\" width=\"128\" height=\"128\" \/>\n      <\/div>\n      <div class=\"content\">\n          <h3>Master Financial Modeling for Investment Banking With <strong>BIWS Core Financial Modeling<\/strong><\/h3>\n      <\/div>\n    <\/div>\n    \n    <div class=\"full_text\">\n    \t<ul>\n        \t<li>\n            \t<h4>Become a financial modeling pro<\/h4>\n              <p>158 videos, detailed written guides, Excel files, quizzes, and more<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Complete 10+ detailed global case studies<\/h4>\n            <p>These include both the theory and the practical applications<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Prepare for your internship or full-time job<\/h4>\n            <p>Gain the skills you need to \u201chit the ground running\u201d on Day 1\n\n<\/p>\n\t\t\t  <\/li>\n      <\/ul>\n        \n      <a class=\"cta-link orange-button-medium\" href=\"https:\/\/breakingintowallstreet.com\/core-financial-modeling\/\" target=\"_blank\">Full Details<\/a>\n      \n      <a class=\"cta-link orange-button-medium bg-blue\" href=\"https:\/\/biws-support.s3.us-east-1.amazonaws.com\/Course-Outlines\/Core-Financial-Modeling-Course-Outline.pdf\" target=\"_blank\" rel=\"noopener\">Short Outline<\/a>\n    <\/div>\n<\/div><\/div>\n\n<h2><span class=\"ez-toc-section\" id=\"What_Does_the_Times_Interest_Earned_Ratio_Tell_You_Is_It_Useful_or_Misleading\"><\/span><strong>What Does the Times Interest Earned Ratio Tell You? Is It Useful or Misleading?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Measuring the TIE Ratio is a bit like going to the doctor, getting a blood test, and then reviewing a single metric in the test, such as your LDL-C (the \u201cbad cholesterol\u201d) or the creatinine, which measures your kidney function.<\/p>\n<p>If you get a single \u201cbad\u201d number, it doesn\u2019t mean that your heart or kidney will explode and that you\u2019ll die tomorrow.<\/p>\n<p>Instead, you must view this measurement <strong>in context<\/strong>.<\/p>\n<p>What do your other numbers look like? Is everything else in line with the norms, or are there other troubling signs? What do your nutrition, sleep, stress, and exercise look like?<\/p>\n<p>It\u2019s the same with the TIE Ratio, which is why you always look at it <strong>in conjunction with<\/strong> other metrics, such as Debt \/ EBITDA, <a href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/debt-to-equity-ratio\/\" target=\"_blank\" rel=\"noopener\">Debt \/ Equity<\/a>, the Fixed Charge Coverage Ratio, and the Debt Service Coverage Ratio.<\/p>\n<p>So, if a company\u2019s TIE Ratio is on the low side \u2013 say, around 2.0x \u2013 but the rest of its metrics look fine, it might be able to raise additional Debt on similar terms to its current issuance.<\/p>\n<p>But if everything else is questionable \u2013 maybe Debt \/ EBITDA over 5.0x and a FCCR just above 1.0x \u2013 then lenders will be more reluctant or might demand higher interest rates:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31833 size-full\" title=\"Times Interest Earned Ratio vs. Leverage Ratio and Fixed Charge Coverage Ratio\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112120\/05-TIE-Leverage-Ratio-FCCR.jpg\" alt=\"Times Interest Earned Ratio vs. Leverage Ratio and Fixed Charge Coverage Ratio\" width=\"1809\" height=\"1027\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112120\/05-TIE-Leverage-Ratio-FCCR.jpg 1809w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112120\/05-TIE-Leverage-Ratio-FCCR-300x170.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112120\/05-TIE-Leverage-Ratio-FCCR-1024x581.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112120\/05-TIE-Leverage-Ratio-FCCR-768x436.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/08\/13112120\/05-TIE-Leverage-Ratio-FCCR-1536x872.jpg 1536w\" sizes=\"(max-width: 1809px) 100vw, 1809px\" \/><\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_Can_Companies_Boost_Their_Times_Interest_Earned_Ratios\"><\/span><strong>How Can Companies Boost Their Times Interest Earned Ratios?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Anything that reduces the company\u2019s Debt balance or Interest Expense while maintaining or improving its core business will increase the Times Interest Earned Ratio.<\/p>\n<p>For example, <strong>selling non-core assets<\/strong> and using the proceeds to repay Debt is a common strategy to improve a company\u2019s TIE.<\/p>\n<p>This works because income from these non-core assets should <strong>not<\/strong> be part of EBIT or EBITDA, so this action keeps the numerator the same but reduces the denominator, as a lower Debt balance means reduced Interest Expense.<\/p>\n<p>Other strategies include:<\/p>\n<ul>\n<li><strong>Refinance<\/strong> the company\u2019s current Debt and replace it with lower-interest-rate Debt in exchange for other concessions, such as stricter covenants.<\/li>\n<li><strong>Cut costs<\/strong> by reducing the company\u2019s headcount and renegotiating leases or supplier contracts.<\/li>\n<li><strong>Grow<\/strong> the core business, so that EBIT and EBITDA increase in future periods, producing lower TIE Ratios.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"To_TIE_or_Not_to_TIE_Final_Thoughts_on_the_Times_Interest_Earned_Ratio\"><\/span><strong>To TIE or Not to TIE: Final Thoughts on the Times Interest Earned Ratio<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Our view is that the TIE Ratio is good for a \u201cquick and dirty\u201d analysis, but less useful once you go into more depth on a company, property, or deal.<\/p>\n<p>Although it seems simple, the different definitions and the nuance around the non-cash components of Interest make the interpretation trickier than expected.<\/p>\n<p>Even <em>comparing<\/em> different companies can sometimes be challenging because of these issues.<\/p>\n<p>We prefer ratios such as the DSCR or FCCR because they more effectively compare the <strong>cash flows<\/strong> to the total Debt Service.<\/p>\n<p>\u201cDebt Service\u201d includes both Interest and Scheduled Principal Repayments and, therefore, gives a more complete picture of the company\u2019s ongoing obligations.<\/p>\n<p>So, the Times Interest Earned Ratio is a useful <strong>screening tool<\/strong> or as \u201cStep 1\u201d in your analysis, but its usefulness falls by the time you reach \u201cStep 10.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Times Interest Earned Ratio, also known as the Interest Coverage Ratio, measures how well a company\u2019s core-business earnings can pay for the interest expense on its Debt and represents its credit risk and additional capacity for Debt issuances; there are many different definitions because there are different types of \u201cearnings\u201d and \u201cinterest expense.\u201d<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-31828","biws_kb","type-biws_kb","status-publish","hentry","kb_category-financial-statement-analysis"],"acf":[],"_links":{"self":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb\/31828","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb"}],"about":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/types\/biws_kb"}],"wp:attachment":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media?parent=31828"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}