Interest Coverage Ratio Formula

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Interest Coverage Ratio Calculator

The interest coverage ratio, also called times interest earned, tells you how many times a company could pay its interest bill out of its operating profit. It divides earnings before interest and taxes (EBIT) by interest expense for the same period. Lenders and credit rating agencies watch it closely because it shows how much room there is before a fall in profits makes interest unaffordable.

How to use the formula

EBIT is used because interest is paid before tax. Some analysts use EBITDA instead, adding back depreciation and amortization, which gives a higher ratio; state which one you use. A ratio below 1 means operating profit does not cover interest at all, and the company must use cash reserves or new borrowing to pay its lenders.

With EBIT of 180,000 and interest of 30,000, coverage is 6.0 times. Lenders often want at least 1.5 to 3 times, depending on the industry and how stable earnings are. Coverage falls when rates rise or profits drop, so it is a useful stress test: halve EBIT and see where the ratio lands. For property and project loans, lenders prefer the debt service coverage ratio, which includes principal repayments.

Frequently asked questions

What is the interest coverage ratio formula?

Interest coverage = EBIT ÷ interest expense.

What is a good interest coverage ratio?

Generally above 3 is comfortable; below 1.5 signals that the company may struggle to pay interest if earnings dip.

What is the difference between interest coverage and DSCR?

Interest coverage only counts interest; DSCR includes principal repayments too.

Can I use EBITDA instead of EBIT?

Yes, many lenders do. It adds back non-cash charges and gives a higher ratio.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.