Interest Coverage Ratio Calculator

Evaluate corporate debt capacity and solvency. Calculate the exact Times Interest Earned (TIE) ratio using modern net interest deductions, ASC 842 lease additions, and EBITDA tracking.

Operating Income (EBIT)

Earnings before interest and taxes. Enter valid operating income

Depreciation & Amortization

Added back to EBIT to calculate cash flow (EBITDA). Enter valid D&A amount

Gross Interest Expense

Total interest paid on bank debt, revolvers, and bonds. Enter valid interest expense

ASC 842 Lease Interest

Implied interest from capitalized operating leases. Enter valid lease interest

Interest Income

Yield earned on cash reserves (deducted from gross expense). Enter valid interest income

Calculation Results

EBIT Interest Coverage Ratio

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Times Interest Earned (TIE) based on net interest expense.

How to calculate your true debt capacity

Input baseline earnings

Enter your Operating Income (EBIT). Then, add back non-cash expenses like Depreciation and Amortization (D&A). The calculator will automatically process both your EBIT (conservative metric) and your EBITDA (cash-flow metric) coverage ratios simultaneously.

Compile total gross interest

Enter the total interest payable on all corporate debt (term loans, revolvers, bonds, notes). Crucially, you must also extract the implied interest expense from your capitalized ASC 842 operating leases to get an accurate total burden.

Net out your interest income

If your company holds large cash reserves in interest-bearing accounts or money market funds, enter the yield here. The tool will subtract this income from your gross expenses to determine your true "Net Interest Expense," which provides a much more accurate coverage ratio.

Evaluate credit health

The tool outputs your coverage multiple (e.g., "4.5x"). This indicates that your operating income can cover your interest burden 4.5 times over. Look at the "Credit Health" indicator to see if your ratio qualifies as Investment Grade or Speculative Risk.

Interest Coverage Ratio Benchmarks & Credit Ratings

EBIT Coverage Ratio	Standard & Poor's Equivalent	Credit Health Classification	Default Risk Profile
Investment Grade (Safe Capital Structures)
> 8.5x	AAA / AA	Exceptional	Extremely Low Risk
5.0x – 8.5x	A	Strong	Low Risk
3.0x – 5.0x	BBB	Adequate	Moderate Risk
High Yield / Speculative Grade (Junk)
2.0x – 3.0x	BB	Vulnerable	Elevated Risk
1.5x – 2.0x	B	Highly Speculative	High Default Risk
Distressed / Restructuring Territory
1.0x – 1.5x	CCC	Substantial Risk	Severe Distress Risk
< 1.0x	CC / D	In Default / Zombie	Imminent Bankruptcy

Frequently asked questions

What is a "good" Interest Coverage Ratio?

Generally, an ICR above 3.0x is considered healthy and acceptable by commercial lenders, indicating the company generates three times as much operating income as it needs to cover its debt. Ratios between 1.5x and 2.5x are tight and usually relegated to private equity leverage buyouts, while anything below 1.5x is a severe warning sign of financial distress and potential default.

Should I use Net Interest Expense or Gross Interest?

Modern credit analysis favors Net Interest Expense. If a company has massive debt but also holds massive cash reserves in a 5% yield money market account, that interest income directly pays down their debt burden. Subtracting interest income from the gross interest expense reveals the true cash drain the company experiences.

EBIT vs. EBITDA: Which coverage ratio is better?

EBIT is the more conservative and widely accepted metric for standard corporate loans, as depreciation acts as a reliable proxy for future capital expenditures required to keep the business running. However, EBITDA is favored in leveraged finance (junk bonds, leveraged buyouts) because it provides a raw look at short-term cash flow available to aggressively service high debt loads before reinvestment.

How do ASC 842 capitalized leases affect the ratio?

Under modern accounting rules, operating lease payments are split into two categories on the income statement: amortization of the right-of-use asset, and implied interest expense on the lease liability. Because this implied interest acts identically to bank loan interest, it must be added to the denominator when calculating true interest coverage.

About this calculator

This Interest Coverage Ratio (ICR) calculator, also known as the Times Interest Earned (TIE) ratio, determines a company's margin of safety for servicing its debt load.

Unlike basic calculators, this tool processes both standard and cash-flow proxies utilizing modern netting adjustments:

Net Interest Expense = (Gross Interest Expense + Implied Lease Interest) - Interest Income

EBIT Coverage Ratio = Operating Income (EBIT) ÷ Net Interest Expense

EBITDA Coverage Ratio = (EBIT + Depreciation & Amortization) ÷ Net Interest Expense

A note on Principal Repayments: The ICR specifically measures the ability to cover interest payments, not the principal. If a company has substantial near-term debt maturities (balloon payments) or high mandatory amortization requirements, it may still face severe liquidity crises and bankruptcy even with an optically safe Interest Coverage Ratio. For total debt service coverage, utilize a DSCR (Debt Service Coverage Ratio) model.