What is the interest coverage ratio?

The interest coverage ratio shows how many times a company's operating earnings (EBIT) cover its interest expense. A ratio of 4.0 means EBIT is four times larger than the interest bill.

What is a good interest coverage ratio?

Most lenders want a ratio of at least 1.5–2.0 before extending credit. Ratios above 3.0 are considered healthy; ratios below 1.0 mean the company cannot cover interest from operating profit alone.

EBIT stands for Earnings Before Interest and Taxes. It represents a company's operating profit stripped of financing costs and tax charges, making it the cleanest measure of core business profitability for this ratio.

How does ICR differ from DSCR?

The interest coverage ratio only counts interest expense. The debt service coverage ratio (DSCR) also includes principal repayments, making it a stricter measure of total debt-servicing capacity.

Yes. A negative ICR means EBIT is negative — the company is losing money from operations and cannot cover any interest from earnings. This is a serious distress signal.

Interest Coverage Ratio Calculator

Name: Interest Coverage Ratio Calculator
Availability: InStock
Author: Nham Vu

Enter EBIT and interest expense to calculate the interest coverage ratio and see how comfortably a company can service its debt.

Inputs

EBIT ($)

Earnings Before Interest and Taxes — operating profit from the income statement.

Interest Expense ($)

Total interest charges on debt for the same reporting period.

Interest Coverage Ratio (ICR)

Enter EBIT and interest expense to calculate the ratio.

Benchmark Guide

ICR Range	Signal	What It Means
< 1.0	Critical	EBIT cannot cover interest; default risk is high
1.0 – 1.5	Weak	Barely covers interest; any earnings drop is dangerous
1.5 – 3.0	Adequate	Meets obligations with moderate buffer; monitor closely
> 3.0	Strong	Comfortable coverage; lenders and investors favor this

Summary

Enter EBIT and interest expense to calculate the interest coverage ratio and see how comfortably a company can service its debt.

How it works

Enter EBIT — operating profit before interest and tax charges.
Enter total interest expense for the same reporting period.
The calculator divides EBIT by interest expense to produce the ICR.
The gauge and badge interpret the result against standard benchmarks.
Review the breakdown table for context on what each range signals.

Use cases

Assess a company's ability to service existing debt before lending.
Screen equity investments for financial stress risk.
Compare debt-servicing capacity across companies in the same sector.
Monitor a portfolio company's leverage health quarter over quarter.
Prepare credit analysis reports and underwriting memos.
Validate covenant compliance thresholds in loan agreements.

Frequently Asked Questions

Last updated: 2026-06-11 · Reviewed by Nham Vu