# What is my interest coverage ratio?

Computes the interest coverage ratio (times interest earned): earnings before interest and taxes divided by interest expense, from EBIT or from net income.

- Page: https://www.acalculator.org/finance/interest-coverage-ratio-calculator
- JSON spec: https://www.acalculator.org/finance/interest-coverage-ratio-calculator.json
- Version: f95200b87916

## Default answer

Example with the default inputs (Start from Operating income (EBIT), Operating income (EBIT) $43,000.00, Interest expense $2,000.00): EBIT of $43,000.00 is 21.5 times the interest expense of $2,000.00.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| from | Start from | Operating income (EBIT), or net income with taxes and interest added back. |
| ebit | Operating income (EBIT) | Earnings before interest and taxes. Negative for an operating loss. |
| ni | Net income | Profit after every expense, interest and tax. Negative for a loss. |
| tax | Income tax expense | Income tax expense for the period. Negative for a tax benefit. |
| int | Interest expense | Interest charged on all debt for the same period. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| coverage | Interest coverage ratio | EBIT ÷ interest expense: how many times operating income covers the interest. |
| earnings | EBIT (operating income) | As typed, or net income + interest expense + income tax expense. |

## Method

From operating income: EBIT as typed. From net income: EBIT = net income + interest expense + income tax expense. Interest coverage ratio = EBIT ÷ interest expense.

## Assumptions

- All amounts are for the same period, from one income statement.
- Interest expense is the interest on all debt; income tax expense may be negative for a tax benefit.
- Arithmetic is exact on the typed decimals; the ratio shows to 2 decimals and money to the cent, halves up.

## Worked examples

1. from = ebit, ebit = $43,000.00, int = $2,000.00 gives coverage = 21.5, earnings = $43,000.00. Source: OpenStax, Principles of Finance, 6.4 Solvency Ratios (times interest earned = EBIT ÷ interest expense; Clear Lake Sporting Goods $43,000 ÷ $2,000 = 21.5 times). https://openstax.org/books/principles-finance/pages/6-4-solvency-ratios: 43,000 ÷ 2,000 = 21.5.
2. from = net, ni = $35,000.00, tax = $6,000.00, int = $2,000.00 gives coverage = 21.5, earnings = $43,000.00. Source: OpenStax, Principles of Finance, 5.1 The Income Statement (Clear Lake Sporting Goods: operating income $43,000 and $38,000, interest $2,000 and $3,000, income tax $6,000, net income $35,000). https://openstax.org/books/principles-finance/pages/5-1-the-income-statement: 35,000 + 2,000 + 6,000 = 43,000; OpenStax, Principles of Finance, 6.4 Solvency Ratios (times interest earned = EBIT ÷ interest expense; Clear Lake Sporting Goods $43,000 ÷ $2,000 = 21.5 times). https://openstax.org/books/principles-finance/pages/6-4-solvency-ratios.
3. from = ebit, ebit = $38,000.00, int = $3,000.00 gives coverage = 12.666667. Source: OpenStax, Principles of Finance, 5.1 The Income Statement (Clear Lake Sporting Goods: operating income $43,000 and $38,000, interest $2,000 and $3,000, income tax $6,000, net income $35,000). https://openstax.org/books/principles-finance/pages/5-1-the-income-statement.
4. from = ebit, ebit = -$10,000.00, int = $4,000.00 gives coverage = -2.5. Source: OpenStax, Principles of Finance, 6.4 Solvency Ratios (times interest earned = EBIT ÷ interest expense; Clear Lake Sporting Goods $43,000 ÷ $2,000 = 21.5 times). https://openstax.org/books/principles-finance/pages/6-4-solvency-ratios (formula).
5. from = net, ni = -$2,500.00, tax = $0.00, int = $1,250.50 gives coverage = -0.9992, earnings = -$1,249.50.

## FAQ

### What is the interest coverage ratio?

The interest coverage ratio, also called the times interest earned (TIE) ratio, shows how many times a company could pay its interest expense out of its operating income. It measures how easily a business can pay the interest on its debt.

### How do I calculate the interest coverage ratio?

Divide earnings before interest and taxes (EBIT) by interest expense. Clear Lake Sporting Goods had operating income of $43,000 and interest expense of $2,000, so its ratio was 43,000 ÷ 2,000 = 21.5 times.

### How do I get EBIT from net income?

Add interest expense and income tax expense back to net income. Clear Lake's net income was $35,000 after $2,000 of interest and $6,000 of income tax, so its EBIT was 35,000 + 2,000 + 6,000 = $43,000.

### What is a good interest coverage ratio?

Higher is safer: it leaves more room for profits to fall before interest becomes hard to pay. A ratio of 1 means operating income just covers the interest, and below 1 it does not. Lenders set their own minimums, which vary by industry.

### What does a negative interest coverage ratio mean?

The business had an operating loss, so its operations did not earn anything toward the interest. An operating loss of $10,000 with $4,000 of interest expense gives a ratio of −2.5.

### How is interest coverage different from the debt service coverage ratio?

Interest coverage compares operating income with interest only. The debt service coverage ratio compares cash available with all debt payments due, interest and principal, so it is the stricter test of whether a borrower can repay.

## Sources

- OpenStax, Principles of Finance, 6.4 Solvency Ratios: the times interest earned (TIE) ratio measures the company’s ability to pay interest expense on all debt incurred; times interest earned = earnings before interest and taxes (EBIT) ÷ interest expense; Clear Lake Sporting Goods $43,000 ÷ $2,000 = 21.5 times. https://openstax.org/books/principles-finance/pages/6-4-solvency-ratios (retrieved 2026-10-19)
- OpenStax, Principles of Finance, 5.1 The Income Statement: Clear Lake Sporting Goods (operating income $43,000 and $38,000, interest expense $2,000 and $3,000, income tax expense $6,000 and $5,000, net income $35,000 and $30,000). https://openstax.org/books/principles-finance/pages/5-1-the-income-statement (retrieved 2026-10-19)