**Times Interest Earned Ratio**

The Times Interest Earned Ratio is the final leverage ratio we look at and is slightly different to the previous two. It is purely a risk measure and the calculation tells us how many times over a company’s earnings, specifically its earnings before interest and tax (EBIT), can be used to meet its interest payments.

While the debt ratio is a risk measure telling us the level of business debt, the times interest earned ratio is a risk measure telling us about debt serviceability. It explains how easily (or not) a business can service its debts. The higher the ratio, the more times over its EBIT can meet its interest expense, the easier it can service its debt and the safer a business appears to be.

The ratio represents how many times over a company’s EBIT (Income Before Tax plus Interest Expense) covers its interest expense. A result of 4.2 means there is 4.2 times EBIT than there is interest expense.

*Times Interest Earned Ratio Formula*

(Income before Tax + Interest Expense) / Interest Expense

*Times Interest Earned Ratio Calculator*

**The calculator asks for:**

*Income Before Tax*, which is found in the Income Statement.

*Interest Expense*, which is also found in the Income Statement.

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