Calculate TIE ratio, EBITDA coverage, fixed charge coverage, and implied credit rating. Includes EBIT sensitivity and interest burden scenario analysis.
The Times Interest Earned (TIE) ratio — also called the interest coverage ratio — measures a company's ability to pay interest on its debt from operating income. Calculated as EBIT divided by interest expense, a TIE of 6.25x means the company earns 6.25 times its interest obligation, providing a comfortable safety margin.
Lenders and credit analysts consider TIE one of the most important solvency metrics. A TIE below 1.5x signals potential distress — the company barely earns enough to cover interest, leaving little room for an earnings dip. Above 5x is considered very strong, while 3-5x represents adequate coverage for most industries.
Beyond the basic TIE, this calculator provides EBITDA coverage (adding back depreciation for a cash-flow perspective), fixed charge coverage (including lease obligations), and an implied credit rating based on coverage thresholds used by major rating agencies. The EBIT sensitivity table reveals how an earnings decline or expansion would shift coverage and creditworthiness.
Use this to measure how much operating income is available to cover interest, test covenant headroom, and see how sensitive coverage is to an earnings drop. The EBITDA and fixed-charge views help separate pure interest coverage from broader debt-service pressure.
TIE = EBIT / Interest Expense. EBITDA Coverage = (EBIT + D&A) / Interest Expense. Fixed Charge Coverage = EBITDA / (Interest + Lease Payments). Implied Rating: AAA ≥ 8x, AA ≥ 6x, A ≥ 4x, BBB ≥ 2.5x, BB ≥ 1.5x, B ≥ 1x.
Result: TIE: 6.25x — EBITDA Coverage: 7.00x — Fixed Charge: 5.60x — Rating: AA
With $5M EBIT and $800K in interest, the TIE of 6.25x implies an AA credit rating. Even a 30% EBIT decline would keep the ratio at 4.38x (A-rated). The EBITDA-based coverage of 7.0x provides an even stronger view, as depreciation adds $600K of non-cash expense back.
TIE is most useful when you want to know how many times EBIT covers interest in the current period. A higher ratio means more room for a downturn before debt service becomes strained.
EBIT-based coverage is the standard lending metric, but EBITDA coverage can better reflect cash generation when depreciation is large. Fixed-charge coverage goes one step further by including lease obligations that also reduce flexibility.
A healthy-looking ratio can weaken quickly if revenue slips or interest expense rises. The sensitivity table helps show whether the business still clears common lending thresholds after a realistic earnings shock.
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This page computes the classic times-interest-earned ratio by dividing EBIT by annual interest expense, then layers on EBITDA coverage and fixed-charge coverage views so the user can compare the pure operating-income version with broader debt-service pressure. It also shows how the ratio changes when EBIT is stressed up or down from the current base case.
The output is best used as a covenant and solvency screening aid rather than as a formal credit opinion. Different lenders can define coverage using adjusted EBITDA or additional fixed charges, so the result should be compared with the company's actual credit agreement language before it is treated as a binding threshold.
Generally: above 5x is very strong, 3-5x is adequate, 1.5-3x is thin, below 1.5x is concerning. However, acceptable levels vary by industry — stable industries like utilities may operate safely at 2-3x, while cyclical businesses should maintain 4x+ to survive downturns. Loan covenants typically require 2.0-3.0x minimum.
TIE measures operating income vs. interest only. Debt Service Coverage Ratio (DSCR) measures cash flow available for all debt service — including principal repayment. DSCR is more comprehensive but harder to compute. A company can have strong TIE but weak DSCR if principal repayment obligations are high.
Yes — if EBIT is negative (the company has an operating loss), TIE will be negative, meaning the company cannot cover any interest from operations. This indicates severe financial distress. Negative TIE for more than 1-2 quarters often leads to credit downgrades and potential default.
TIE directly measures the safety margin for debt service. A company with TIE of 8x can absorb a 75% earnings decline and still cover interest. One with TIE of 1.5x can absorb only a 33% decline. This difference in resilience is exactly what credit ratings measure — the probability that the company will default on its obligations.
Both provide value. EBIT-based TIE is more conservative and is the standard definition. EBITDA-based coverage adds back non-cash depreciation/amortization, providing a better approximation of cash available for interest. Use EBIT for credit analysis and EBITDA for cash flow analysis. Report both when communicating with stakeholders.
Lenders use minimum TIE covenants (e.g., 3.0x) to set borrowing limits. If your EBIT is $5M and the minimum TIE is 3.0x, maximum interest expense allowed is $5M / 3.0 = $1.67M. At a 6% interest rate, this implies maximum debt of roughly $27.8M.