Interest Coverage Ratio Calculator
Determines if a company generates enough earnings to meet interest obligations
EBIT divided by interest expense
Assessment of the company's ability to cover interest payments
Frequently Asked Questions
What is the interest coverage ratio?
It measures how easily a company can pay interest on its outstanding debt. Calculated as EBIT (earnings before interest and taxes) divided by interest expense. A ratio of 3 means the company earns 3x its interest obligations.
What is a good interest coverage ratio?
Above 3.0 is generally considered strong. Between 1.5 and 3.0 is adequate but worth monitoring. Below 1.5 signals potential difficulty meeting interest payments. Below 1.0 means the company cannot cover its interest from operating earnings.
How can I improve my interest coverage ratio?
Increase operating income through higher revenue or lower costs, refinance debt at lower interest rates, pay down principal to reduce interest expense, or restructure debt to extend terms and lower payments.
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