About the Interest Coverage Ratio Calculator
The interest coverage ratio tells you how many times a company’s operating earnings could pay its interest bill. This calculator returns the classic times interest earned (TIE) ratio — EBIT divided by interest expense — together with EBITDA interest coverage, which adds back depreciation and amortisation, and an optional fixed-charge coverage ratio that also counts lease or rent payments.
Lenders use these ratios in loan covenants, credit analysts use them to judge default risk, and investors and owners use them to decide whether a business can safely take on more debt. The calculator also shows how far EBIT could fall before operating profit no longer covers interest at all.
Use figures for the same 12-month period, usually the last fiscal year or trailing twelve months. Interest expense should be gross interest on all borrowings; if you include lease payments, enter them as the annual fixed charge before tax.
With the default inputs, the interest coverage (times interest earned) is 4.8 ×. Change any value above to recalculate instantly.
How to use the interest coverage ratio calculator
- 1Enter EBIT (operating income) for the year or trailing twelve months.
- 2Enter depreciation and amortisation from the cash flow statement.
- 3Enter total interest expense for the same period.
- 4Optionally add annual lease or rent payments to see fixed-charge coverage.
- 5Compare the ratios with your loan covenants or industry peers.
Formula and method
Times interest earned divides earnings before interest and taxes by interest expense. Interest is paid before tax, so EBIT is the pool of operating earnings available to pay it. EBITDA coverage adds back depreciation and amortisation, which are non-cash charges, giving a rough view of cash earnings relative to interest; it is never lower than TIE.
Fixed-charge coverage treats lease or rent payments like interest: they are added back to EBIT (because they were deducted as an operating expense) and added to the fixed charges in the denominator. The “EBIT could fall by” figure is (EBIT − interest) ÷ EBIT, the margin of safety before coverage hits 1.0×. The assessment bands are general rules of thumb — lenders set their own covenant levels by industry.
- EBIT
- Earnings before interest and taxes
- D&A
- Depreciation and amortisation expense
- TIE
- Times interest earned (interest coverage ratio)
Worked examples
Healthy mid-size company
EBIT of $1.2M against $250,000 of interest gives 4.8× coverage. Adding $300,000 of D&A, EBITDA of $1.5M covers interest 6×. EBIT could drop about 79% before interest was no longer covered.
Highly indebted business
EBIT of $400,000 covers $320,000 of interest only 1.25 times, so a 20% fall in operating profit would wipe out the cushion. Most lenders would see this as high risk.
Retailer with large lease payments
Interest coverage of 6× looks strong, but adding $120,000 of rent to both sides gives fixed-charge coverage of ($900,000 + $120,000) ÷ ($150,000 + $120,000) = 3.78×.
Frequently asked questions
What is a good interest coverage ratio?+
A ratio above about 3× is generally considered comfortable and above 5× strong, while anything below 1.5× is a warning sign. Acceptable levels vary by industry — stable utilities can operate with lower coverage than cyclical businesses.
What does an interest coverage ratio below 1 mean?+
Operating earnings are smaller than interest expense, so the company cannot pay its interest from current profits and must use cash reserves, asset sales or new borrowing. Persistent coverage below 1 often precedes financial distress.
Is times interest earned the same as interest coverage ratio?+
Yes. Times interest earned (TIE) is the most common form of the interest coverage ratio and uses EBIT. Variants use EBITDA or EBIAT in the numerator, so always check which version a lender or report uses.
Why use EBITDA instead of EBIT?+
EBITDA adds back depreciation and amortisation, which are non-cash expenses, so it approximates the cash available to pay interest. It is common in leveraged lending, but it ignores the capital spending needed to replace worn-out assets.
What is the fixed-charge coverage ratio?+
It extends interest coverage to include other fixed obligations, usually lease or rent payments: (EBIT + lease payments) ÷ (interest + lease payments). It is useful for retailers, restaurants and other businesses with large lease commitments.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.