The formula to calculate the Time Interest Earned Ratio (TIER) is:
TIER=EBITDAE
Where:
Let's say the total EBITDA is $50,000 and the total interest expense is $10,000. Using the formula:
TIER=5000010000
We get:
TIER=5
So, the time interest earned ratio is 5, meaning the company earns 5 times its interest expense.