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Interest Coverage Ratio

Check whether operating earnings are sufficient to service interest payments — a low ratio signals potential debt repayment risk.

Interest Coverage Ratio Calculator

Earnings Before Interest and Taxes (EBIT)

Interest Expense

Results

Interest Coverage Ratio

times

Rating

Risk Level

Recommendation

Enter values to calculate interest coverage ratio

Analysis Breakdown

Financial Metrics

EBIT:

Interest Expense:

Coverage Ratio:

Industry Benchmarks

Poor (< 1.5) High Risk

Fair (1.5 - 2.5) Medium Risk

Good (2.5 - 4.5) Low Risk

Excellent (> 4.5) Very Low Risk

Key Insights

Understanding Interest Coverage Ratio

Formula

Interest Coverage Ratio = EBIT ÷ Interest Expense

What it Measures

The interest coverage ratio measures a company's ability to pay interest on its debt. It shows how many times a company can cover its interest payments with its earnings.

Interpretation Guidelines

• Higher ratios indicate better financial health
• Ratios below 1.5 suggest high financial risk
• Ratios above 2.5 are generally considered healthy
• Industry standards may vary significantly

Key Components

EBIT: Earnings Before Interest and Taxes - measures operational profitability

Interest Expense: Cost of borrowing money, including loans and bonds

Use Cases

• Credit risk assessment
• Investment decision making
• Loan approval processes
• Financial health monitoring
• Comparative company analysis

Limitations

• Based on historical data
• Doesn't consider principal repayments
• May not reflect future earning capacity
• Industry variations not considered

Interest Coverage Ratio