When the times interest earned ratio is less than 1.0,a company is generating enough income to cover its interest expense.

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When the times interest earned ratio is less than 1.0, it means that the company is not generating enough income to cover its interest expense, which can be a sign of financial distress. A times interest earned ratio of 1.0 indicates that the company is just able to cover its interest expense with its operating income. Ideally, a company should have a times interest earned ratio of at least 2.0, which indicates that it has sufficient operating income to cover its interest expense and have a buffer against unexpected expenses or revenue fluctuations.

When the Times Interest Earned Ratio Is Less Than 1