Course Outline
Join PRO

What is the times interest earned ratio?

Author:
Harold Averkamp, CPA, MBA

Definition of Times Interest Earned Ratio

The times interest earned ratio is an indicator of a corporation’s ability to meet the interest payments on its debt. The times interest earned ratio is calculated as follows: the corporation’s income before interest expense and income tax expense divided by its interest expense.

The larger the times interest earned ratio, the more likely that the corporation can make its interest payments.

The times interest earned ratio is also referred to as the interest coverage ratio.

Example of Times Interest Earned Ratio

Assume that a corporation had the following amounts for the most recent year:

  • Net income after tax of $500,000
  • Interest expense of $200,000
  • Income tax expense of $300,000

Given these assumptions, the corporation’s income before interest and income tax expense was $1,000,000 (net income of $500,000 + interest expense of $200,000 + income tax expense of $300,000). Since the interest expense was $200,000, the corporation’s times interest earned ratio was 5 ($1,000,000 divided by $200,000).

Join PRO to Track Progress
Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Certificates of
Achievement

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus