What is the Interest Coverage Ratio?
Interest Coverage Ratio Calculator: The Interest Coverage Ratio is a financial metric used to measure a company's ability to pay its interest expenses on outstanding debt. This ratio is critical for creditors and investors to assess the financial health and risk associated with a business.
Calculate Interest Coverage Ratio
Interest Coverage Ratio Formula
The formula to calculate the Interest Coverage Ratio is:
Interest Coverage Ratio = EBIT / Interest Expense
Where:
- EBIT = Earnings Before Interest and Taxes
- Interest Expense = Total interest payable on debts
How to Use the Interest Coverage Ratio Calculator
Follow these steps to calculate the Interest Coverage Ratio:
- Enter your company's EBIT (Earnings Before Interest and Taxes).
- Enter the total Interest Expense.
- Click the calculate button to get the Interest Coverage Ratio.
Why is the Interest Coverage Ratio Important?
The Interest Coverage Ratio helps in:
- Assessing a company's ability to meet its interest obligations.
- Determining the financial stability and creditworthiness of a company.
- Helping investors and creditors make informed decisions.
Interest Coverage Ratio Examples
If a company's EBIT is $50,000 and its annual Interest Expense is $10,000, the Interest Coverage Ratio would be:
Interest Coverage Ratio = 50,000 / 10,000 = 5
This means the company earns 5 times its interest obligations, indicating strong financial health.
Try Our Interest Coverage Ratio Calculator
Use our free online Interest Coverage Ratio Calculator to easily determine your company's ability to meet interest expenses.