Interest Coverage Ratio Calculator - Debt Health
Calculate interest coverage ratio, EBIT, EBITDA coverage, and interest expense inputs to assess debt-service capacity and financial health.
Enter net income, interest expense, and optional tax, depreciation, and amortization to calculate EBIT, interest coverage, and EBITDA coverage.
Interest Coverage Ratio Calculator - Debt Health
Calculate interest coverage ratio, EBIT, EBITDA coverage, and interest expense inputs to assess debt-service capacity and financial health.
About the Interest Coverage Ratio Calculator
Interest coverage asks whether operating earnings can service interest in the current period. Lenders, rating analysts, and credit committees watch it because a profitable company on a net-income basis can still be fragile if interest is large relative to EBIT. The interest coverage ratio calculator rebuilds EBIT from net income, interest, and tax, then optionally adds depreciation and amortization for an EBITDA coverage view.
EBIT is net income + interest expense + tax expense. Interest coverage is EBIT / interest. EBITDA adds depreciation and amortization, and EBITDA coverage is EBITDA / interest. Interest must be positive. The ratios are period coverage figures, not credit ratings, and they use the totals you enter rather than a full income-statement roll-forward.
Net income $500,000, interest $50,000, tax $150,000, depreciation $75,000, and amortization $25,000 produce EBIT of $700,000, interest coverage of 14.00x, and EBITDA coverage of 16.00x. A thinner case of $200,000 net income, $40,000 interest, $60,000 tax, and $20,000 depreciation is 7.50x EBIT coverage and 8.00x EBITDA coverage. Coverage below about 2x often triggers extra scrutiny, though covenants vary by industry.
Non-cash earnings, one-off tax items, capitalized interest, lease interest under IFRS 16, and EBITDA add-backs can distort both ratios. Negative net income is rejected in this form, so loss-making firms need a different worksheet. Compare coverage with the debt schedule and with free cash flow, not only with EBIT, before concluding that interest is comfortable.
Credit analysis works better when interest coverage is trended, not snapped once. Run the interest coverage ratio calculator on last year, this year, and a downside year with lower net income to see whether 7.50x is durable or a peak-cycle artifact. If interest is mostly non-cash PIK or is capitalized into a development project, say so in the notes because the ratio will look stronger than cash interest coverage. Pair the result with leverage (debt/EBITDA) before calling the capital structure conservative.
Interest Coverage Examples
Coverage uses EBIT = net income + interest + tax, then divides by interest expense.
| Inputs | Interest coverage | Notes |
|---|---|---|
| Net income $500,000, interest $50,000, tax $150,000, D&A $75,000 + $25,000 | 14.00x | EBIT is $700,000 and EBITDA coverage is 16.00x. |
| Net income $200,000, interest $40,000, tax $60,000, depreciation $20,000 | 7.50x | EBITDA coverage is 8.00x after adding depreciation. |
| Net income $80,000, interest $25,000, tax $20,000 | 5.00x | Without D&A, EBIT and EBITDA coverage are both 5.00x. |
How to Calculate Interest Coverage
- Enter net income and interest expense for the same reporting period.
- Add tax expense so EBIT can be reconstructed from the bottom of the income statement.
- Optionally enter depreciation and amortization for EBITDA coverage.
- Select Calculate to view interest coverage, EBIT, EBITDA coverage, and interest expense.
- Compare the ratio with loan covenants, which may define EBIT or EBITDA differently.
Interest Coverage Ratio Calculator FAQ
Why add tax and interest back to net income?
Interest coverage is an operating-earnings test. Starting from net income, adding interest and tax rebuilds EBIT when you do not have a full income statement.
What coverage ratio is considered healthy?
Many credit policies look for at least 2x to 3x EBIT coverage, with higher bars in cyclical industries. A 14x result is ample; a result near 1x means earnings barely cover interest.
Is EBITDA coverage better than EBIT coverage?
EBITDA coverage is looser because it ignores depreciation and amortization. Use it only if your lenders do. EBIT coverage is the stricter earnings test.
Can I enter a company that reported a net loss?
Not in this form, which requires non-negative net income. A loss-making borrower needs a cash-interest-coverage or forecast model instead.
Does this include principal repayments?
No. Interest coverage ignores scheduled principal. Debt-service coverage would add principal to the denominator.