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Interest Coverage Ratio Calculator: Can This Company Service Its Debt?
Enter any ticker to get EBIT, interest expense, ICR, a 4-quarter trend, and a plain-English verdict — Strong, Adequate, or Risky.
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Live EBIT and interest expense from Yahoo Finance (TTM annual). Interest coverage = EBIT ÷ Interest Expense.
What Is the Interest Coverage Ratio?
The interest coverage ratio (ICR) — also called the times interest earned (TIE) ratio — measures how many times a company can pay its interest obligations from operating earnings. The formula is simple: ICR = EBIT ÷ Interest Expense. A ratio of 4× means the company earns four dollars of operating profit for every dollar of interest it owes. The higher the ratio, the more comfortable the margin of safety.
Investors use ICR as a quick debt-serviceability check before running a full DCF valuation or adding a stock to a watchlist. A company with strong free cash flow but a deteriorating ICR trend is a red flag that warrants investigation — it may signal rising leverage, margin compression, or one-time EBIT drag. Pair ICR with the debt-to-equity ratio for a complete picture of financial health.
What Is a Good Interest Coverage Ratio?
The company earns at least three times its interest obligations. Lenders are comfortable, credit ratings tend to be investment-grade, and there is a meaningful buffer against earnings volatility.
Serviceable, but the margin of safety is thin. A moderate earnings decline could push ICR to dangerous levels. Watch the trend: improving from 1.5× to 2.5× is a positive signal; deteriorating from 3× to 1.8× is a warning.
Credit analysts flag this range for elevated default risk. Any further earnings weakness may cause the company to breach loan covenants or face rating downgrades. Below 1×, the company cannot cover interest from operations alone.
Why the 4-Quarter Trend Matters More Than the Snapshot
A single ICR figure is a snapshot; the trend is the story. A company with a 2.8× ICR that has improved from 1.9× over four quarters is in a very different position than one that has declined from 4.2× to 2.8×. The former is recovering; the latter is under pressure. The 4-quarter trend table in this calculator lets you see exactly which direction the company is moving — and whether the TTM figure is a floor or a ceiling.
Be aware that quarterly EBIT can be noisy: one-time restructuring charges, asset impairments, or seasonality can make a single quarter look much worse or better than the underlying trend. Look at the direction across all four quarters, not just the most recent period. If three of four quarters show improvement, a bad quarter is probably noise. If the trend is uniformly downward, it warrants deeper investigation into the income statement.
ICR by Industry: Thresholds Vary
The “safe at 3×” rule is a starting point, not a universal standard. Capital-intensive sectors carry structural leverage that lenders price into credit agreements: utilities with regulated rate-of-return earnings routinely run at 2–3× ICR; airlines operate at thin margins with heavy fixed costs and a 2× ICR can be industry-normal during up-cycles. REITs are better analyzed with EBITDA-based coverage ratios because depreciation distorts EBIT. In contrast, asset-light businesses like software or consumer brands should easily clear 5× — a 3× ICR for a SaaS company signals too much debt relative to earnings power.
Always benchmark against the company's peers and historical average, not just the universal threshold. The sector note in the calculator above provides context for the ticker you're analyzing.
How to Use This Calculator
Enter a ticker
Type any US-listed ticker and click Load. The calculator fetches TTM EBIT and interest expense from Yahoo Finance automatically.
Read the verdict badge
Strong (≥ 3×), Adequate (1.5–3×), or Risky (< 1.5×). The plain-English sentence below contextualizes the number.
Check the 4-quarter trend
Is ICR improving or deteriorating? A company recovering from a low ICR is in a different category than one in a steady decline.
Pair with a DCF or D/E check
Use the CTA links to run a full DCF valuation or check the debt-to-equity ratio — ICR is most powerful as part of a multi-ratio financial health screen.
Frequently Asked Questions
What is the interest coverage ratio formula?
ICR = EBIT ÷ Interest Expense. EBIT (Earnings Before Interest and Taxes) is found on the income statement as operating income. Interest expense is the gross interest paid on debt. Some analysts use EBITDA instead of EBIT, which produces a higher (more favorable) ratio since it adds back depreciation and amortization.
What is a good interest coverage ratio?
3× is the widely cited safe threshold. A ratio of 1.5× to 3× is adequate but leaves limited cushion. Below 1.5×, credit analysts flag elevated default risk. Below 1×, the company cannot cover interest from operations and must use cash reserves or refinance. Always compare to industry peers — regulated utilities and airlines routinely operate below 3×.
How does ICR differ from the debt-to-equity ratio?
D/E measures the stock of leverage — how much debt a company carries relative to equity. ICR measures the flow — whether current earnings can service that debt. A company can have a high D/E ratio but a healthy ICR if it's generating strong EBIT. Both ratios are needed: D/E tells you how leveraged the balance sheet is; ICR tells you whether the income statement can handle it.
What happens when ICR falls below 1.5×?
Lenders typically include interest coverage covenants in credit agreements that trigger if ICR drops below a specified threshold (often 2× or 2.5×). A breach can force renegotiation, accelerated repayment, or higher interest rates. Credit rating agencies may downgrade the company, increasing borrowing costs further — a negative feedback loop that makes recovery harder.
Why is EBIT used instead of net income?
Net income is after taxes and non-operating items. Using net income would be circular — it's calculated after paying interest, which is what we're trying to measure coverage for. EBIT strips out taxes and interest to isolate operating earning power. Some analysts use EBITDA to add back non-cash charges, but EBIT is the most conservative and commonly used numerator.
Can ICR be negative?
Yes. If EBIT is negative (operating losses), ICR is negative — meaning the company cannot cover interest even before taxes. This is a severe warning sign. The calculator flags this explicitly: 'EBIT negative — interest coverage at risk.' For unprofitable companies, ICR is not a useful metric; focus on cash burn rate and runway instead.