Times Interest Earned

Creditors have learned that the number of Times Interest Earned is one of the best indicators of their investment's safety. The Times Interest Earned lets the creditor understand whether or not a company has sufficient income to cover interest payments. Failure to cover these interest payments can have a serious impact on the financial stability of the company.

Times Interest Earned is calculated as follows:

Operating Income / Annual Interest Expense

As a general rule, the Times Interest Earned should be around three or higher.