5 2016-03-25 Febmat.com

# Interest coverage / Times Interest Earned - TIE

## Calculation formula

## Recommended value

Last updated: 25.03.2016

**Interest coverage (Times Interest Earned - TIE) is one of the indicators of indebtedness and financial structure. It shows how many times the earnings before interest and taxes (EBIT) are higher than interest expense, or how many times can the earnings be reduced before it reaches the border of interest expense. The higher is thus the indicator, the better.**

If the indicator is high, high ability to repay loans and take out a new loan can be expected.

Inverse indicator is Interest burden.

*The formula can include the total cost of borrowings instead of interest expense.*

- value should definitely be > 3, but ideally > 7
- value < 1 means that the company is not even at present able to pay interest from its profit