Interest Coverage Ratio Calculator
Calculate the interest coverage ratio to measure a company’s ability to pay interest expenses on outstanding debt. Assess financial health and risk for businesses and investments.
Step 1: Financial Data
Interest Coverage Ratio Formula
Interest Coverage Ratio = EBIT ÷ Interest Expense
A ratio above 1.5 is generally considered acceptable, above 2.0 is good, and above 3.0 is excellent.
Step 2: Analysis & Options
Interpretation Guide
Below 1.0: Danger zone (cannot cover interest)
1.0-1.5: Risky
1.5-2.0: Acceptable
2.0-3.0: Good
3.0+: Excellent
Interest Coverage Ratio Results
Interest Coverage Ratio
Industry Benchmark Comparison
| Industry | Average Ratio | Your Ratio | Assessment |
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Interest Coverage Ratio Formula
Interest Coverage Ratio = EBIT ÷ Interest Expense
Where:
• EBIT = Earnings Before Interest and Taxes
• Interest Expense = Total interest payments on debt
• Ratio shows how many times a company can cover its interest payments
Interpretation:
• Below 1.0: Company cannot meet interest obligations
• 1.0-1.5: High risk, minimal coverage
• 1.5-2.0: Acceptable coverage
• 2.0-3.0: Good financial health
• 3.0+: Excellent, strong financial position
Example Calculation
Example: Manufacturing Company
EBIT: $500,000
Interest Expense: $100,000
Calculation:
$500,000 ÷ $100,000 = 5.0
Interpretation:
Ratio of 5.0x means the company earns 5 times more than its interest obligations, indicating excellent financial health and low risk for creditors and investors.
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