Times interest earned (TIE) indicates the number of times the company can cover its interest expense, with earnings. Thus, a value of 2.0 means the company can pay its interest expense twice over from earnings. Specifically, TIE is the earnings before payment of interest and income taxes divided by interest expense. Since failure to meet interest payments would be a default under the terms of lending agreements, TIE measures the leverage safety. The exact amount of desired safety depends on the firm's cash flow and the stability of company earnings, however, values of 2.0 or greater tend to indicate safe leverage. Values less than 1.0 indicate pending insolvency because the firm's earnings are not sufficient to cover their interest expense. Values between 1 and 2 indicate solvency, but also indicate an unsafe ability meet interest payments. Times Interest Earned (TIE) 80.00 70.00 78.33 56.42 60.00 50.00 40.00 30.00 13.14 20.00 6.33 10.00 0.00 2018 2019 Plan Industry Q27. Times Interest Eamed and Safe Leverage conclusion: a. The firm has a sufficient level of interest coverage safety, and the level of safety is improving or unchanged. b. The firm has a sufficient level of interest coverage safety, but the level of safety is declining. c. The firm does not have a sufficient level of interest coverage safety, but level of safety is improving. d. The firm does not have a sufficient level of interest coverage safety, and the level of safety is declining. e. The firm has no interest expense, so interest coverage is not a problem. Q28. Times Interest Eamed and Safe Leverage conclusion, trend: a. The level of safety is improving due primarily to the improvement in Earnings (EBIT). b. The level of safety is improving due primarily to the reduction in Interest Expense. c. The level of safety is declining due primarily to the decline in Earnings (EBIT). d. The level of safety is declining due primarily to the increase in Interest Expense. e. Not applicable (The firm has no interest expense, or there is no change in leverage).