Interest Coverage Ratio Calculator

Calculate the interest coverage ratio

The interest coverage ratio, also called times interest earned, measures how easily a company can pay the interest on its debt from its operating profit. It is calculated by dividing earnings before interest and taxes, or EBIT, by the interest expense for the period. A ratio of five means the company earns five times the operating profit needed to cover its interest payments. The higher the ratio, the more comfortably the company can service its debt and absorb a drop in earnings.

A ratio below one means operating profit is not even enough to cover interest, a serious warning sign.

Assessing debt safety

Lenders and bondholders rely on the interest coverage ratio to judge credit risk, since it directly measures the cushion between profits and the fixed cost of debt. A ratio above three is generally considered comfortable, while a ratio under one and a half suggests the company could struggle if earnings fall or interest rates rise. The metric is especially important for companies carrying significant debt.

Because it uses EBIT, the ratio focuses on operating performance before the effects of financing and tax. Trends over time matter: a falling coverage ratio signals rising risk even if the current level looks adequate. All calculation happens locally in your browser.

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