Interest Coverage Ratio, sometimes called Times Interest Earned Ratio and the abbreviation TIE is used. It is a term that indicates how many times the total income covers interest payments. The interest coverage indicates the size of safety cushion for creditors.
The indicator is one of the balance sheet debt ratios (of long-term financial stability).
Interest Coverage Ratio = EBIT / Total Interest Payable
Use of the TIE in practice: This indicator is one of the key indicators for rating agencies. The higher values, the greater its ability to pay costs associated with the use of foreign capital. The value of 3 is considered the limit between investment and speculation. The indicator is accompanied by the Debt to Equity ratio.
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