Interest Coverage Ratio Calculator

How to use this calculator

1. Enter EBIT (earnings before interest and taxes).
2. Enter total annual interest expense.
3. See coverage multiple to compare against lender thresholds.

Inputs explained

EBIT

Operating profit before interest and taxes; use trailing twelve months or forecast.

Interest expense

Total annual interest on all debt obligations.

When to use it

• Checking covenant compliance for bank loans.
• Comparing coverage before and after new debt.
• Communicating debt serviceability to lenders or investors.

Tips & cautions

• Use a consistent period (TTM or projected next 12 months) for both EBIT and interest.
• Stress-test by lowering EBIT or raising interest to see coverage under downside scenarios.
• Some lenders prefer EBITDA coverage—adjust inputs if depreciation/amortization is significant.
• Single-period snapshot; does not model cash flow timing or principal amortization.
• Assumes EBIT is stable; cyclical businesses should test multiple scenarios.
• Excludes capitalized interest or fees unless you include them in interest expense.

Worked examples

Deep dive

FAQs

What is a good interest coverage ratio?

Lenders often like 2.0× or higher; stronger is better, but it depends on industry volatility.

Should I use EBIT or EBITDA?

Some lenders use EBITDA to add back depreciation/amortization. Use EBIT here or adjust to your lender’s preferred metric.

Does this include principal payments?

No. It only compares EBIT to interest. For full debt service coverage, include principal in a DSCR calculation.

What about variable-rate debt?

If rates may rise, increase interest expense to see coverage under higher rate scenarios.

Can I use quarterly data?

Yes—keep periods consistent. If using quarterly EBIT and interest, the ratio is still valid for that period.

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