Overview
Enter EBIT and interest expense to calculate the interest coverage ratio: EBIT ÷ interest expense. This ratio measures how many times over a company's operating earnings could cover its interest payments on debt - a higher ratio generally indicates more comfortable debt-servicing capacity, while a ratio near or below 1 suggests operating earnings barely cover (or don't cover) interest obligations. EBIT can be negative (an operating loss), in which case the ratio comes out negative; this tool reports that number as-is without attaching a "safe" or "unsafe" verdict, since acceptable thresholds vary by industry and capital structure. Interest expense cannot be zero, since it's the denominator. Runs entirely client-side, and this is an informational estimate, not financial advice.
Best for: Assessing how comfortably a company's operating earnings cover its interest expense on debt
How to use this tool
- Enter EBIT. Earnings before interest and taxes - can be negative if the company posted an operating loss.
- Enter interest expense. Total interest owed on outstanding debt for the period - must be greater than zero.
- Read the ratio. EBIT divided by interest expense, expressed as a multiple (e.g. 5.0x).
Frequently asked questions
It shows how many times a company's operating earnings (EBIT) could cover its interest payments. A ratio of 5x means EBIT is five times the interest expense - generally comfortable. A ratio close to or below 1x means operating earnings barely cover, or don't cover, interest obligations.
The ratio comes out negative, which this tool displays as-is - it does not attach a pass/fail verdict, since what counts as an acceptable ratio varies significantly by industry and how leveraged the business is expected to be.
Interest expense is the denominator in the formula, so a value of zero would make the ratio undefined (division by zero). If a company genuinely has no interest expense, this ratio isn't a meaningful metric for it.