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Creditors have learned that the Number of Times Interest Earned is one of the best indicators of the safety of their investment. The times interest earned lets the creditor understand whether or not a company has sufficient income to cover its interest payments requirements. Failure to cover these interest payments can have a serious and impact on the financial stability of the company. Times Interest Earned is calculated: Operating Income / Annual Interest Expense As a general rule, the times interest earned should be around 3 or higher. |
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