Result
Interest coverage ratio
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
Interest coverage ratio = EBIT ÷ interest expense for the period. A value of 4 means operating profit is 4 times what's needed to cover interest payments.
It looks similar to DSCR but differs in substance: DSCR is calculated on cash flow and covers the entire debt payment — both interest and principal — while interest coverage ratio is calculated on EBIT (an accounting figure) and covers interest only, not principal. DSCR more accurately reflects the real ability to pay on a specific loan; interest coverage ratio is a simpler, more common metric often used in loan covenants.
A value below 1 means operating profit isn't even enough to cover interest — a warning sign regardless of industry. Lenders often set a minimum threshold for this ratio as a loan condition — the specific value is always spelled out in the individual loan agreement.