Interest Coverage Ratio

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