The formula to calculate the Times Interest Earned (TIE) Ratio is:
\[ \text{TIE Ratio} = \frac{\text{EBIT}}{\text{Total Interest}} \]
The times interest earned (TIE) ratio is a financial metric that measures a company's ability to fulfill its interest obligations on outstanding debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense within a specific period, typically a year.
Let's assume the following:
Step 1: Calculate the TIE ratio:
\[ \text{TIE Ratio} = \frac{750,000}{150,000} = 5 \]
Therefore, the Times Interest Earned (TIE) Ratio is 5, meaning Beta Electronics can cover its interest expenses 5 times over with its current EBIT.
