INTEREST COVERAGE

Interest Coverage Calculator

Divide EBIT by interest expense for the same period. This is times interest earned, not EBITDA coverage.

How many times EBIT covers interest

Times interest earned, the classic interest-coverage ratio, divides earnings before interest and taxes by interest expense for the same period. A 6× result means EBIT is six times the interest bill; the dollar cushion is EBIT minus interest. Debt-to-equity is a stock leverage ratio. Household DTI compares monthly payments with income. WACC uses a cost of debt, not this coverage multiple.

Interest coverage = EBIT ÷ interest expense
Cushion = EBIT − interest expense

Example

$120,000 of EBIT and $20,000 of interest is 6×, with a $100,000 cushion. OpenStax’s $43,000 / $2,000 example is 21.5×.

What this ratio leaves out

Interest expense must be positive; zero interest leaves the ratio undefined. The numerator is EBIT, not EBITDA. Principal repayments, lease payments, and taxes stay outside the identity. Negative EBIT produces negative coverage. Use figures from the same period.

Frequently asked questions

Is this EBITDA coverage?

No. Enter EBIT. Adding depreciation and amortization is a different ratio.

Does this include principal?

No. Coverage here is only interest expense, not scheduled principal.

Can EBIT be negative?

Yes. Then coverage is negative and the cushion is more negative than the interest bill.

How is this different from DTI?

Household debt-to-income divides monthly debt payments by income. Interest coverage divides a firm’s EBIT by interest expense.

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