A measure of the creditworthiness of a company, equal to EBIT divided by interest.

(TIE) measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs. The TIE ratio is used by bankers to assess a firm's ability to pay their liabilities. TIE determines how many times during the year the company has earned the annual interest costs associated with servicing its debt. Normally, a banker will be looking for a TIE ratio to be 2.0 or greater, showing that a business is earning the interest charges two or more times each year. A value of 1.0 or less suggests that the firm is not earning sufficient amounts to cover interest charges.

A financial ratio that compares a company's interest expense to the company's income before interest expense and income taxes. It is an indicator of the likelihood that interest payments will be made in the future. To learn more, see Explanation of Financial Ratios. To Top