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Ratios: Times Interest Earned (TIE) definitions Flashcards

Ratios: Times Interest Earned (TIE) definitions
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  • Times Interest Earned Ratio
    A solvency measure showing how many times operating income can cover interest expense, indicating a firm's ability to meet debt obligations.
  • Solvency Ratio
    A financial metric assessing a company's capacity to meet long-term debts and interest obligations using its income.
  • Operating Income
    Earnings from core business activities after deducting operating expenses, but before interest and taxes.
  • Interest Expense
    The cost incurred by a company for borrowed funds, typically paid periodically to lenders.
  • Net Income
    The bottom-line profit remaining after all expenses, including interest and taxes, are subtracted from total revenue.
  • Income Tax Expense
    The amount a company owes in taxes based on its taxable income, usually listed as a non-operating expense.
  • Non-Operating Expense
    Costs not related to core business operations, such as interest and income tax expenses.
  • Financial Statement
    A formal record summarizing a company's financial activities, used by banks to monitor loan agreements.
  • Loan Default
    A situation where a borrower fails to meet the terms of a loan agreement, often triggered by not maintaining required ratios.
  • Loan Agreement
    A contract outlining the terms under which money is borrowed, often specifying required financial ratios.
  • Core Business Activities
    Primary operations generating a company's main revenue, excluding non-operating items like interest and taxes.
  • Contract Requirement
    A stipulated condition in a legal agreement, such as maintaining a minimum financial ratio.
  • Financial Distress
    A state where a company struggles to meet financial obligations, often signaled by a low solvency ratio.
  • Solvency
    The ability of a company to meet its long-term financial commitments and avoid default.
  • Denominator
    The bottom part of a fraction in a ratio calculation, such as interest expense in the TIE formula.