What is the formula for calculating the times-interest earned (TIE) ratio?
A) TIE ratio = Interest charges ÷ Total liabilities
B) TIE ratio = Earnings per share ÷ Interest charges
C) TIE ratio = Sales ÷ Interest charges
D) TIE ratio = EBIT ÷ Interest charges
E) TIE ratio = Interest charges ÷ Net income

Question

Quizplus · Accepted Answer

Times-interest earned (TIE) ratio is calculated as earnings before interest and taxes (EBIT) divided by interest charges. Therefore, the formula for calculating TIE ratio is TIE ratio = EBIT ÷ Interest charges, which is option D. Options A, B, C, and E are not correct formulas for calculating the TIE ratio.

What Is the Formula for Calculating the Times-Interest Earned (TIE)