See how comfortably a business's earnings cover the interest on its debt. Enter EBIT, or net income, or revenue and costs, plus interest expense to get the interest coverage ratio (times interest earned), EBITDA coverage, an interpretation and a stress test showing what happens if profits fall or rates rise.
Last updated:
Start from
$
$
$
$
$
COGS + operating expenses, before interest and tax.
$
For the same period as EBIT.
$
For EBITDA coverage.
Optional
$
Adds fixed-charge coverage.
×
e.g. a loan covenant.
%
Shows total debt capacity at the target.
Enter your values to see the result.
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How to use the Interest Coverage Ratio Calculator
Choose a starting point: EBIT, net income (interest and taxes are added back) or revenue minus operating costs.
Enter interest expense for the same period, and depreciation and amortization for EBITDA coverage.
Optionally add lease payments for fixed-charge coverage, a target coverage and an interest rate for debt capacity.
Read the coverage ratio and its interpretation, then check the EBIT cushion.
Use the stress test to see coverage if earnings fall or interest rises.
Interest coverage formulas
Interest coverage (TIE) = EBIT ÷ interest expense
EBIT from net income = net income + interest expense + income tax expense
Example: EBIT of $420,000 and interest of $110,000 give coverage of 3.82×. With $90,000 of depreciation and amortization, EBITDA coverage is 510,000 ÷ 110,000 = 4.64×. EBIT could fall by 73.8% before earnings would only just cover interest, and at a 3× target the business could carry up to $140,000 of annual interest.
Why the stress test matters
Coverage falls fast when two things happen together: profits drop and interest rises on variable-rate debt or refinancing. Starting from 3.82× coverage:
Scenario
EBIT
Interest
Coverage
As is
$420,000
$110,000
3.82×
EBIT −20%
$336,000
$110,000
3.05×
Interest +50%
$420,000
$165,000
2.55×
EBIT −20% and interest +50%
$336,000
$165,000
2.04×
EBIT −50% and interest +50%
$210,000
$165,000
1.27×
Tips for using the ratio
Match the periods. Use EBIT and interest for the same 12 months; trailing-twelve-month figures avoid seasonal distortion.
Use total interest expense, including interest on credit lines and finance leases, not just the main loan.
Look at the trend over several years and check the loan agreement for how your lender defines EBIT or EBITDA.
Interest coverage ratio = EBIT ÷ interest expense, where EBIT is earnings before interest and taxes. A company with $420,000 of EBIT and $110,000 of interest expense has a coverage ratio of 3.82×: operating profit covers its interest bill 3.82 times.
Is interest coverage the same as times interest earned?
Yes. Times interest earned (TIE) is another name for the same EBIT ÷ interest ratio. Some lenders use EBITDA instead of EBIT, which gives a higher figure because depreciation and amortization are added back.
What is a good interest coverage ratio?
As a rule of thumb, below 1.5× is considered risky, 1.5× to 3× weak to moderate, and 3× or more healthy. Stable businesses such as utilities can operate with lower coverage than cyclical ones, and loan covenants often set a specific minimum.
How do I calculate EBIT from net income?
Add back interest expense and income tax expense: EBIT = net income + interest + taxes. With net income of $240,000, interest of $110,000 and taxes of $70,000, EBIT is $420,000.
What is fixed-charge coverage?
Fixed-charge coverage includes other fixed obligations, usually lease or rent payments: (EBIT + lease payments) ÷ (interest + lease payments). It gives a fuller picture for businesses that lease their premises or equipment instead of borrowing to buy them.
How is interest coverage different from DSCR?
Interest coverage looks only at interest. The debt service coverage ratio (DSCR) compares cash available for debt service with interest plus principal repayments, so it is stricter and is commonly used for loans with regular amortization, such as commercial real estate loans.
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