Interest Coverage Ratio
Short answer
Interest coverage shows how many times over your operating profit can pay your annual interest expense.
Formula
Interest Coverage = EBIT / Interest Expense
Take operating income (EBIT) and divide by your annual interest expense.
Why it matters
Interest coverage isolates the question 'can we afford our debt?' from principal payments. Below 1.5× and a single bad quarter could mean missed interest. Bond covenants often require ≥ 2.0× minimum.
Benchmarks
People also ask
Common questions about Interest Coverage Ratio
What is Interest Coverage Ratio?+
Interest coverage shows how many times over your operating profit can pay your annual interest expense.
How is Interest Coverage Ratio calculated?+
Take operating income (EBIT) and divide by your annual interest expense.
What is a good Interest Coverage Ratio?+
A healthy interest coverage ratio is typically around ≥ 4.0× — strong. Specific targets vary by industry and stage; check our benchmarks above for your sector.
Why does Interest Coverage Ratio matter?+
Interest coverage isolates the question 'can we afford our debt?' from principal payments. Below 1.5× and a single bad quarter could mean missed interest.
See your business's interest coverage ratio.
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