Interest Coverage Ratio Calculator: Assess Your Company’s Debt-Servicing Ability
Enter revenue, cost of goods, operating expenses, and interest expense; the calculator returns EBIT and the interest-coverage ratio. A ratio of 3 × or higher signals comfortable debt service capacity (Moody’s, 2021).
Interest Coverage Ratio Calculator
Results:
Revenue:
Cost of Goods and Services:
Operating Expenses:
Interest Expenses:
Earnings Before Interest and Taxes (EBIT):
Interest Coverage Ratio:
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How to use the tool
Revenue (USD) – type your total sales. Example inputs: 1 350 000 or 975 000.
Cost of Goods and Services (USD) – enter direct production costs. Examples: 820 000 or 640 000.
Operating Expenses (USD) – add administrative, selling, and general costs. Examples: 290 000 or 180 000.
Interest Expense (USD) – record total interest paid on debt. Examples: 75 000 or 42 000.
Press “Calculate” to display Earnings Before Interest and Taxes (EBIT) and the Interest-Coverage Ratio.
Formulas used
$$ \text{EBIT}= \text{Revenue}-\text{Cost of Goods and Services}-\text{Operating Expenses} $$
$$ \text{Interest Coverage Ratio}= \frac{\text{EBIT}}{\text{Interest Expense}} $$
The company earns 2.33 × its interest cost, showing moderate coverage.
Quick-Facts
Coverage ≥ 3 × is generally considered healthy (Moody’s, 2021).
S&P 500 industrial firms averaged 6 × in 2022 (S&P Global Market Intelligence, 2023).
Loan covenants often require a minimum of 2 × (Federal Reserve Senior Loan Officer Survey, 2023).
IFRS defines borrowing costs in IAS 23 for interest calculations (IFRS Foundation, 2022).
FAQ
What is the interest-coverage ratio?
The ratio shows how many times EBIT can pay current interest charges, revealing debt-service safety (Investopedia, 2023).
Why does the ratio matter?
Lenders and rating agencies use it to gauge default risk; low values increase borrowing costs (S&P Global, 2023).
What counts as a “good” ratio?
Most analysts want ≥ 3 ×; utilities can pass at 2 ×; airlines need nearer 4 × (Moody’s, 2021).
Can the ratio be negative?
Yes—negative EBIT yields a negative ratio and signals severe operating losses (SEC Form 10-K Guide, 2023).
How often should you calculate it?
Quarterly reviews align with financial statements and expose trend shifts early (PwC Financial Reporting Manual, 2023).
Does it affect credit ratings?
“Interest-coverage is a primary indicator of financial endurance” (S&P Criteria, 2019). Higher ratios boost ratings.
How can you improve your ratio?
Raise prices, cut discretionary costs, refinance at lower rates, or retire high-interest debt (Deloitte Debt Advisory, 2023).
Is a very high ratio always positive?
Extremely high coverage can mean under-leveraging and missed growth financed cheaply (Harvard Business Review, 2022).
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