Lenders and rating agencies watch interest coverage closely. A ratio below 1.5 is a warning sign; below 1 means operating profit doesn’t even cover interest. Strong companies often exceed 5–8×.
How to use the Interest Coverage Ratio Calculator
- EBIT
- Interest expense
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter EBIT and interest expense.
Tips
- Check whether rates are quoted annually, semi-annually or per period.
- Bond prices and yields move in opposite directions – a higher yield means a lower price.
- Use the bond’s clean price (without accrued interest) for yield calculations.
- Credit ratios are most useful when tracked over several years.
Common mistakes to avoid
- Confusing the coupon rate with the yield.
- Using the face value instead of the market price.
- Forgetting that callable bonds may be redeemed before maturity.
Inputs explained
| Field | What to enter |
|---|---|
| EBIT | Amount in your currency |
| Interest expense | Amount in your currency |
Example values
How the main result changes when EBIT changes and everything else stays at the example values above:
| EBIT | Interest coverage ratio (×) |
|---|---|
| 1,250,000 | 2.5 |
| 1,875,000 | 3.75 |
| 2,500,000 | 5 |
| 3,125,000 | 6.25 |
| 3,750,000 | 7.5 |
| 5,000,000 | 10 |
Formula
Interest coverage ratio = EBIT ÷ interest expenseWorked example
Inputs — EBIT: $2,500,000; Interest expense: $500,000.
Results — Interest coverage ratio = 5 ×; Assessment = Strong.
Frequently asked questions
What is a good interest coverage ratio?
Above 3 is generally healthy; above 5 is strong.
How is it different from TIE?
They are the same ratio under different names.
Should I use EBITDA instead?
EBITDA coverage is also used and gives a higher figure.
What formula does the Interest Coverage Ratio Calculator use?
Interest coverage ratio = EBIT ÷ interest expense.