Interest coverage ratio is EBIT divided by interest expense.
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An interest coverage ratio calculator divides EBIT, earnings before interest and taxes, by interest expense, a quick check on how comfortably a company can meet the interest it owes from what it earns.
Divide EBIT by interest expense. EBIT comes from the income statement: revenue minus operating expenses, before interest and tax are subtracted. Interest expense is the total interest owed on the company's debt for the period. A company with 500,000 dollars in EBIT and 100,000 dollars in interest expense has an interest coverage ratio of 5.0x, meaning its operating earnings are five times what it owes in interest for the period. The higher the multiple, the more breathing room a company has if earnings dip in a future period.
As a general rule of thumb used in corporate finance, a ratio below 1.5 is often treated as risky, since earnings barely cover interest obligations and leave little margin if revenue softens. A ratio above 3 is generally considered comfortable, giving the company several times its interest obligation in operating earnings. Anything in between sits in a middling zone worth watching over several quarters rather than judging from one period alone. Capital-intensive industries that carry debt as a normal part of doing business, like utilities or telecoms, often run lower ratios than asset-light software companies, so comparing a company to close peers matters as much as the raw number.
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