Interest Coverage Ratio Calculator
The interest coverage ratio, or times interest earned, shows how comfortably a company can pay the interest on its debt from operating earnings. It divides earnings before interest and taxes (EBIT) by interest expense, telling you how many times over the interest bill is covered. Lenders watch it closely as a solvency screen. Enter EBIT and interest expense, and the calculator returns the ratio, the EBIT cushion above interest, and the share of EBIT consumed by interest.
Interest coverage ratio formula
Interest coverage ratio = EBIT / interest expense
EBIT cushion = EBIT - interest expense
Interest as % of EBIT = interest expense / EBIT * 100
EBIT is operating income before interest and taxes. Interest expense is the period's total interest owed and must be positive. A ratio of 1.0 means EBIT exactly equals interest; below 1.0 the company cannot cover interest from operations.
Solvency context
- The interest coverage ratio is a key solvency metric in credit analysis and loan covenants.
- Many lenders look for a ratio above 2.0 to 3.0, though thresholds vary by industry.
- A ratio below 1.0 signals that operating earnings do not cover interest, a distress warning.
- Use EBIT, not net income, so interest is not double-counted in the denominator.
- Track the ratio over time; a declining trend can foreshadow refinancing or default risk.
Interest coverage ratio: frequently asked questions
What is the interest coverage ratio?
The interest coverage ratio, also called times interest earned (TIE), measures how many times a company can cover its interest expense with its earnings before interest and taxes (EBIT). A higher ratio means the company more comfortably meets its interest obligations.
What is the interest coverage ratio formula?
Interest coverage ratio = EBIT divided by interest expense. EBIT is earnings before interest and taxes (operating income), and interest expense is the total interest owed on debt for the period.
What is a good interest coverage ratio?
Lenders and analysts often consider a ratio above 2.0 to 3.0 reasonably safe, meaning operating earnings are at least two to three times interest expense. A ratio below 1.0 means earnings do not cover interest, a serious warning sign. Standards vary by industry.
Why use EBIT rather than net income?
EBIT measures operating earnings before interest and taxes are deducted, so it reflects the income available to pay interest. Using net income, which already subtracts interest, would understate the funds available to service debt.
What does a ratio below 1 mean?
A ratio below 1.0 means EBIT is less than interest expense, so the company is not generating enough operating profit to cover its interest payments. This signals financial distress and elevated default risk if it persists.
Official sources
- U.S. Securities and Exchange Commission: How to Read Financial Statements.
- U.S. Small Business Administration: Manage Your Finances.
Reviewed by the CalculatorHub team, edited by James Graham, 16 June 2026. See our methodology.