Enter the earnings before interest and tax and the total interest expense into the calculator. The calculator will evaluate and display the interest coverage ratio.
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Interest Coverage Ratio Formula
The following equation can be used to calculate the interest coverage ratio of a business.
ICR = EBIT / IE
- Where ICR is the interest coverage ratio
- EBIT is the earnings before tax and interest
- IE is the total interest expense
Interest Coverage Ratio Definition
The interest coverage ratio is a financial metric used to analyze businesses. It’s the number of times a company could pay the interest payments with its earnings.
Interest Coverage Ratio Example
How to calculate an interest coverage ratio?
- First, determine the EBIT.
Calculate the total earnings before tax and interest.
- Next, determine the total interest expense.
Calculate the interest expense.
- Finally, calculate the interest coverage ratio.
Use the equation above to calculate the interest coverage ratio.
An interest coverage ratio is a ratio of the total EBIT to the total interest expenses of a company or business.