Interest Coverage Ratio Calculator

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Interest Coverage Ratio measures a company’s ability to meet its interest obligations, calculated as earnings before interest and taxes (EBIT) divided by interest expense. More info →

Input

Enter EBIT and interest expense to calculate coverage ratio.

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How This Calculator Works

The Interest Coverage Ratio shows how many times a company's operating profit could pay its interest bill. The higher it is, the more room the company has before interest payments become a problem.

The Formula

Interest Coverage = EBIT ÷ Interest Expense

EBIT = earnings before interest and taxes (operating profit)

What Each Input Does

EBIT: Operating profit for the period. It cannot be zero; a negative value means an operating loss.
Interest Expense: Interest paid on all debt in the same period. It must be greater than zero.

Step by Step

EBIT is divided by interest expense.
The ratio is shown to 2 decimals and given an assessment.

Reading the Result

2.5 or more – very healthy.

1.5 to below 2.5 – adequate.

Below 1.5 – concerning; below 1.0 the profit cannot cover the interest.

Quick Example

EBIT 500,000, interest expense 100,000. Interest coverage = 500,000 ÷ 100,000 = 5.00, so profit covers interest five times over, which is very healthy.