What does the acronym TIE stand for in relation to financial ratios?

The acronym TIE stands for "Times Interest Earned." This financial ratio measures a company's ability to meet its debt obligations, specifically the interest expenses on its outstanding debts. The ratio is calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expenses. A higher Times Interest Earned ratio indicates that a company has a greater ability to cover its interest payments with its earnings, which is a positive indicator of financial health and stability.

In the context of financial analysis, understanding the Times Interest Earned ratio is crucial for investors and creditors as it provides insight into how well a company can sustain its debt levels. It reflects the buffer that the company has in terms of operational earnings to cover its interest costs, emphasizing the importance of cash flow in maintaining solvency and avoiding default on loans.