How to calculate times interest earned?

The Times Interest Earned (TIE) ratio is a financial metric used to determine a company's ability to cover its interest expenses on its outstanding debt. It's calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expenses for a given period.

Here's how to calculate the TIE ratio in Excel:

  1. Obtain the values for the company's earnings before interest and taxes (EBIT) and interest expenses for the desired period.
  2. Enter the values into two separate cells in Excel, for example, cell A1 for EBIT and cell A2 for interest expenses.
  3. In a third cell, enter the formula to calculate the TIE ratio: =A1/A2
  4. Press Enter to calculate the TIE ratio.

The resulting value will be the TIE ratio, which indicates the number of times the company's earnings can cover its interest expenses. A TIE ratio greater than 1 indicates that the company is earning enough to cover its interest expenses, while a ratio less than 1 indicates that the company is not earning enough to cover its interest expenses and may struggle to pay its debts.

It's important to note that the TIE ratio only provides a snapshot of a company's financial health at a specific point in time and does not take into account future earnings or interest expenses. To get a more comprehensive view of a company's financial health, it's recommended to look at its financial statements and other financial metrics over time.