Interest Coverage Ratio Calculator
Calculate how many times a company can pay its interest expenses from earnings
Calculate Interest Coverage Ratio
Operating earnings before interest and tax deductions
Annual interest payments on debt obligations
Financial Metrics
Interest Coverage Ratio Results
Formula: Interest Coverage Ratio = EBIT ÷ Interest Expense
Calculation: $0 ÷ $0 = 0.00
Interpretation: The company can pay its interest expenses 0.00 times over with current earnings
Financial Health Assessment
Example: Lockheed Martin vs Boeing (2019)
Lockheed Martin Corp
EBIT: $8,545 million
Interest Expense: $653 million
Coverage Ratio: 13.09x
Strong financial position
Boeing Company
EBIT: -$1,975 million
Interest Expense: $722 million
Coverage Ratio: -2.74x
Unable to cover interest from operations
Coverage Ratio Guidelines
Critical
Cannot pay interest
High bankruptcy risk
High Risk
Barely covers interest
Financial distress likely
Moderate
Adequate coverage
Monitor performance
Good
Strong position
Healthy debt management
Excellent
Very conservative
Low financial risk
Key Insights
Higher ratios indicate better ability to service debt
Ratios >3 are generally considered safe by investors
Trend analysis is more important than single period
Compare with industry peers for context
Very high ratios may indicate missed growth opportunities
Understanding Interest Coverage Ratio
What is Interest Coverage Ratio?
The Interest Coverage Ratio (ICR), also known as Times Interest Earned Ratio, measures a company's ability to pay interest expenses on its outstanding debt. It indicates the financial health and creditworthiness of a business.
Why is it Important?
- •Assesses financial stability and solvency
- •Helps predict bankruptcy risk
- •Influences credit ratings and borrowing costs
- •Guides investment and lending decisions
Formula and Components
ICR = EBIT ÷ Interest Expense
- EBIT: Earnings Before Interest and Taxes
- Interest Expense: Total interest payments on debt
- ICR: Number of times interest can be paid
Rule of thumb: A ratio above 3.0 is generally considered healthy for most industries.
Factors Affecting the Ratio
- 📈Higher EBIT: Increased operational efficiency and profitability
- 📉Lower Interest: Reduced debt levels or lower interest rates
- ⚠️Industry Cycles: Economic conditions affecting earnings
- ⚠️Debt Strategy: Aggressive borrowing for expansion
Analysis Best Practices
- 🔍Analyze trends over multiple years
- 🔍Compare with industry benchmarks
- 🔍Consider business cycle impacts
- 🔍Evaluate alongside other financial ratios