Times Interest Earned (TIE) Ratio
The Times Interest Earned (TIE) ratio — also called the interest coverage ratio — measures how many times over a company's operating profit (EBIT) can cover its annual interest payments.
TIE = EBIT / Interest Expense
A TIE of 3 means the company generates three times the operating income needed to pay its interest obligations.
Why Lenders Use TIE
TIE is a standard covenant in commercial lending agreements. Lenders use it to assess whether a borrower has enough operating cushion to absorb earnings volatility while still servicing debt.
Typical lending thresholds: - Most commercial lenders: TIE ≥ 1.5× - Investment-grade credit: TIE ≥ 3× - Conservative balance sheets: TIE ≥ 5×
TIE vs Other Coverage Ratios
| Metric | What It Covers | When to Use |
|---|---|---|
| TIE | Interest only | Fast solvency screen |
| DSCR | Interest + principal | Real estate, project finance |
| Fixed Charge Coverage | Interest + lease payments | Retail, lease-heavy businesses |
Use the TIE Calculator to compute your coverage ratio and buffer.