Interest Coverage Ratio Calculator
See how many times operating profit covers interest expense — the times-interest-earned test of debt safety.
How it works
Interest coverage ratio = EBIT ÷ interest expense (also called times interest earned)
The interest coverage ratio measures how comfortably a company can pay the interest on its debt out of operating profit. It divides EBIT — earnings before interest and taxes — by the interest expense, showing how many times over the profit covers the bill. Lenders and bond investors watch it closely: a ratio below about 1.5 leaves little margin for a downturn, while a high ratio signals debt is easily serviced. Because it uses EBIT rather than cash, pair it with cash-flow measures for a full read.
Worked example
A company earns $1,200,000 of operating income and pays $200,000 in interest. The interest coverage ratio is 1,200,000 ÷ 200,000 = 6.0×, so profit covers interest six times over.
Frequently asked questions
What is a safe interest coverage ratio?
A ratio above roughly 3× is generally considered comfortable, while anything under about 1.5× is a warning sign that even a modest drop in profit could make interest hard to pay. Standards vary by industry and debt levels.
Why use EBIT instead of net income?
Interest is paid before taxes and before the interest deduction itself, so EBIT — profit before interest and taxes — is the pool actually available to cover interest. Using net income would double-count the very expense you are testing.
What does a ratio below 1 mean?
Operating profit is not enough to cover interest, so the company must dip into cash reserves, sell assets or borrow more to meet its obligations — a serious solvency red flag.
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Educational estimate, not investment advice.