# times interest earned

(redirected from Times-Interest-Earned Ratios)

## 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 COVER.
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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).
Model 4 uses times-interest-earned ratio, and the coefficient is 0.001.
The times-interest-earned ratio is operating income before depreciation (compustat # 13) divided by interest expense (compustat # 15).
where [R.sub.pt] is the daily return from January 2, 2001 to Dec 31, 2001 on a portfolio of manufacturing firms in the bottom half and top half based on times-interest-earned ratio. [R.sub.mt] is the CRSP value-weighted index, and [D.sub.t] is equal to 1/3 for each day in the three-day window and zero otherwise.

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