FREE online courses on Financial Ratio Analysis - Leverage Ratios - Times
Interest Earned
Times Interest Earned is the number of times our earnings
(before interest and taxes) covers our interest expense. It represents our
margin of safety in making fixed interest payments. A high ratio is desirable
from both creditors and management. Times Interest Earned is calculated as
follows:
Earnings Before Interest and Taxes / Interest Expense
EXAMPLE -
Earnings Before Interest Taxes is $ 100,000 and we have $ 10,000 in Interest
Expense. Times Interest Earned is 10 times, $ 100,000 / $ 10,000. We are able to
cover our interest expense 10 times with operating income.
