Last updated October 10, 2026 · Report an error
The interest coverage ratio measures how comfortably a company's operating earnings can cover its interest payments — a core solvency metric lenders and investors use to gauge default risk on a company's debt.
How it works
Enter EBIT (earnings before interest and taxes) and interest expense, and the calculator applies Interest Coverage Ratio = EBIT ÷ Interest Expense.
- Enter eBIT ($) — earnings before interest and taxes.
- Enter interest expense ($).
- Click Calculate to see your results.
Examples
A comfortably solvent company
A company with $200,000 of EBIT and $40,000 of interest expense has an interest coverage ratio of 5.0 — its operating earnings cover its interest payments five times over.
Who should use it
- Assessing a company's debt-servicing capacity and credit risk.
- Credit analysis and lending decisions.
Industry applications
- Corporate finance and credit analysis
- Investment analysis and fixed-income research
Advantages
- Simple, widely-used solvency and credit-risk indicator.
- Easy to calculate from figures already on an income statement.
Limitations
- A single-period snapshot can be misleading for businesses with volatile or seasonal earnings.
Common mistakes to avoid
- Using net income instead of EBIT — net income already has interest subtracted out, so it doesn't answer "can earnings cover interest?" the same way.
- Judging a single period's ratio in isolation without checking whether the company's earnings are typically stable or highly cyclical.
Best practices
- Always use EBIT (not net income) as the numerator for this specific ratio.
- Look at the trend over several periods, especially for cyclical businesses where a single period can be misleading.
Tips
- If a company's ratio is trending down over several periods, that's often a more important signal than the absolute level of any single period.
Frequently asked questions
Yes, with no signup and no limit on how many calculations you run.
Commonly, a ratio below 1.5-2 is considered a warning sign in many industries (earnings barely cover interest), though the specific safe threshold varies by industry and how stable/cyclical the business's earnings typically are.
It means operating earnings don't even cover interest payments — the company would need to draw on cash reserves, sell assets, or raise additional financing just to service its existing debt, a serious solvency warning sign.
EBIT specifically isolates operating performance before the effects of financing (interest) and taxes, making it the appropriate earnings figure to compare against interest expense — using net income (which is after interest is already deducted) wouldn't answer the same question.