times interest earned

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Times Interest Earned

A measure of a company's ability to service its debts. It is calculated by dividing the company's earnings before interest and taxes by the total interest payable on its debts, expressed as a ratio. Investors prefer publicly-traded companies to have a middling times-interest-earned ratio. A low ratio indicates an inability to service debts, while too high a ratio indicates a lack of debt that investors may find undesirable.

times interest earned

See interest coverage.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

times interest earned

see INTEREST COVER.

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References in periodicals archive ?

Finally, we compare returns of firms with low times-interest-earned ratio with firms with high times-interest-earned ratios.

We also find that firms with higher times-interest-earned ratios (indicating higher debt servicing capacity) suffered lower stock price declines than firms with lower times-interest-earned ratio.

[H.sub.0] (2): The stock market reaction to the September 11, 2001 terrorist attacks is more pronounced (negative) for low times-interest-earned ratio firms than for high times-interest-earned ratio firms.

We define the times-interest-earned ratio as operating income before depreciation (compustat # 13) divided by interest expense (compustat # 15).

The mean (median) times-interest-earned ratio is -10.47 (4.86).

Testing the trade-off theory of capital structure

The times-interest-earned ratio examines how many times margins can cover interest expense.

Rice and sugar co-ops had declining average values of times-interest-earned. Rice showed the largest average drop, falling from 9.3 to 4.0

Measuring cooperative performance

Traditionally, auditors have used the balance-sheet-based debt-to-equity ratio (total debt/total equity) and the times-interest-earned (EBIT/annual interest payments) ratio to examine a company's longer-term financial health (see exhibit 2, page 61).

Circus Circus showed a downward trend in its traditional debt-to-equity ratio, an indicator of an increasingly strong balance sheet, while maintaining a fairly stable times-interest-earned ratio.

The power of cash flow ratios

Times-interest-earned is a ratio that looks at how many times margins can cover interest expense.

What may be a cause of concern for some sugar and poultry/livestock coops is having both low times-interest-earned values and high long-term debt-to-equity" values.

Measuring top 100 co-op performance

The times-interest-earned ratio measures a company's ability to make interest payments on debt.