times interest earned ratio

(noun)

either EBIT or EBITDA divided by the total interest payable

Related Terms

Examples of times interest earned ratio in the following topics:

  • Times Interest Earned Ratio

    • Times Interest Earned Ratio = (EBIT or EBITDA) / (Required Interest Payments), and is indicative of a company's financial strength.
    • The Times Interest Earned Ratio indicates the ability of a company to meet its required interest payments , and is calculated as:
    • Times Interest Earned Ratio = Earnings before Interest and Taxes (EBIT) / Interest Expense.
    • Analysts will sometimes use EBITDA instead of EBIT when calculating the Times Interest Earned Ratio.
    • The Times Interest Earned Ratio is an indication of a company's overall financial health.

  • Times-Interest-Earned Ratio

    • Times Interest Earned ratio (EBIT or EBITDA divided by total interest payable) measures a company's ability to honor its debt payments.
    • Times interest earned (TIE), or interest coverage ratio, is a measure of a company's ability to honor its debt payments.
    • EBIT = Earnings Before Interest and Taxes, also called operating profit or operating income.
    • EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization.
    • Times Interest Earned or Interest Coverage is a great tool when measuring a company's ability to meet its debt obligations.

  • Analyzing Long-Term Liabilities

    • Analyzing long-term liabilities combines debt ratio analysis, credit analysis and market analysis to assess a company's financial strength.
    • In addition to credit rating agencies such as Standard & Poor's, analysts can use debt ratios to help benchmark a company to it's industry peers.
    • Popular debt ratios include: debt ratio, debt to equity, long-term debt to equity, times interest earned ratio (interest coverage ratio), and debt service coverage ratio.
    • Data used to calculate these ratios are provided on a company's balance sheet, income statement, and statement of changes in equity.
    • There is more to analyzing long-term liabilities than simply reading a company's credit rating and performing independent debt ratio analysis.

  • Ratio Analysis and EPS

    • Values used in calculating financial ratios are taken from the balance sheet, income statement, statement of cash flows or (sometimes) the statement of retained earnings.
    • Times interest earned ratio (Interest Coverage Ratio): EBIT / Annual interest expense
    • Earnings per share (EPS) is the amount of earnings per each outstanding share of a company's stock.
    • Earnings per share for continuing operations and net income are more complicated in that any preferred dividends are removed from net income before calculating EPS.
    • Ratio analysis includes profitability ratios, activity (efficiency) ratios, debt ratios, liquidity ratios and market (value) ratios

  • Debt Utilization Ratios

    • The debt service coverage ratio (DSCR), also known as debt coverage ratio (DCR), is the ratio of cash available for debt servicing to interest, principal, and lease payments.
    • DSCR = (Annual Net Income + Amortization/Depreciation + Interest Expense + other non-cash and discretionary items (such as non-contractual management bonuses)) / (Principal Repayment + Interest payments + Lease payments)
    • A similar debt utilization ratio is the times interest earned (TIE), or interest coverage ratio.
    • It may be calculated as either EBIT or EBITDA, divided by the total interest payable.
    • EBIT is earnings before interest and taxes, and EBITDA is earnings before interest, taxes, depreciation, and amortization.

  • Income Statement Analyses

    • Price to Earnings Ratio = Market Value of Stock / Earnings per Share
    • In stock trading, the P/E ratio (price-to-earnings ratio) of a share (also called its "P/E," or simply "multiple") is the market price of that share divided by the annual Earnings per Share (EPS).
    • The price is in currency per share, while earnings are in currency per share per year, so the P/E ratio shows the number of years of earnings which would be required to pay back the purchase price, ignoring inflation, earnings growth and the time value of money.
    • Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to honor its debt payments.
    • It may be calculated as either EBIT or EBITDA divided by the total interest payable.

  • Price/Earnings Ratio

    • Price to earnings ratio (market price per share / annual earnings per share) is used as a guide to the relative values of companies.
    • The price is in currency per share, while earnings are in currency per share per year, so the P/E ratio shows the number of years of earnings that would be required to pay back the purchase price, ignoring inflation, earnings growth, and the time value of money.
    • P/E ratio = Market price per share / Annual earnings per share
    • Note, each company chooses its own financial year so the timing of updates will vary from one to another.
    • Companies are rarely equal, however, and comparisons between industries, companies, and time periods may be misleading.

  • Basic Earning Power (BEP) Ratio

    • The Basic Earning Power ratio (BEP) is Earnings Before Interest and Taxes (EBIT) divided by Total Assets.
    • Another profitability ratio is the Basic Earning Power ratio (BEP).
    • The BEP ratio is simply EBIT divided by total assets .
    • EBIT, or earnings before interest and taxes, is a measure of how much money a company makes, but is not necessarily the same as operating income:
    • BEP is calculated as the ratio of Earnings Before Interest and Taxes to Total Assets.

  • Selected Financial Ratios and Analyses

    • Analyzing a company's financial statements allows interested parties (investors, creditors and company management) to get an overall picture of the financial condition and profitability of a company.
    • When using comparative financial statements, the calculation of dollar or percentage changes in the statement items or totals over time is horizontal analysis.
    • A publicly traded company's stock price can also be a variable used in the computation of certain ratios, such as the price/earnings ratio.
    • As with quality of sales, high levels for this ratio are desirable.
    • Summarize how an interested party would use financial ratios to analyze a company's financial statement

  • Profitability Ratios

    • Profitability ratios are used to assess a business's ability to generate earnings.
    • They are used to assess a business's ability to generate earnings as compared to expenses over a specified time period .
    • The profit margin ratio is broadly the ratio of profit to total sales times one hundred percent.
    • Basic Earning Power Ratio: The basic earning power ratio (or BEP ratio) compares earnings separately from the influence of taxes or financial leverage to the assets of the company.
    • The BEP is equal to the earnings before interest and taxes divided by the total assets.