What Is the Times Interest Earned Ratio?
ContentProblems with the Times Interest Earned RatioTimes Interest Earned FormulaWhat is the times interest earned ratio? And companies report interest expense related to operating leases as part of lease expense rather than as interest expense. This means that Tim’s income is 10 times greater than his annual interest expense. In this respect, Tim’s business is less risky and the bank shouldn’t have a problem accepting his loan. As you can see, creditors would favor a company with a much higher times interest ratio because it shows the company can afford to pay its interest payments when they come due. Higher...