Interest Coverage Ratio โ Smart Financial Analysis
Calculate how many times a company can pay its interest expense with operating income. ICR = EBIT / Interest Expense. An ICR below 1.5 signals potential default risk.
Did our AI summary help? Let us know.
The Interest Coverage Ratio (ICR) shows how many times a company can pay its interest expense with operating income. ICR = EBIT / Interest Expense. ICR above 2.5 is generally good; above 4 is very safe. ICR measures ability to pay interest only (EBIT / Interest).
Ready to run the numbers?
Why: The Interest Coverage Ratio (ICR) shows how many times a company can pay its interest expense with operating income. ICR = EBIT / Interest Expense. It measures a company's ability to meet interest obligations on debt.
How: Enter EBIT (Operating Income), Interest Expense, Industry Average ICR to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
Run the calculator when you are ready.
๐ Example Scenarios โ Click to Load
Company Financial Data
ICR Comparison โ Your Company vs Benchmarks
ICR Threshold Zones
Industry Average ICR
EBIT vs Interest Expense
For educational purposes only โ not financial advice. Consult a qualified advisor before making decisions.
๐ก Money Facts
Interest Coverage Ratio analysis is used by millions of people worldwide to make better financial decisions.
โ Industry Data
Financial literacy can increase household wealth by up to 25% over a lifetime.
โ NBER Research
The average American makes 35,000 financial decisions per yearโmany can be optimized with calculators.
โ Cornell University
Globally, only 33% of adults are financially literate, making tools like this essential.
โ S&P Global
The Interest Coverage Ratio shows how many times a company can pay its interest expense with operating income. ICR = EBIT / Interest Expense. An ICR below 1.5 signals potential default risk โ the company is barely covering interest payments. Banks typically require ICR > 2.0 for business loans. S&P 500 companies average ICR of 8-12x. Apple's ICR exceeds 25x. During the 2020 pandemic, 30% of US companies had ICR below 3.0, up from 15% pre-pandemic.
๐ Key Takeaways
- โข ICR = EBIT / Interest Expense โ how many times earnings cover interest
- โข ICR < 1.5 = danger zone; ICR > 2.5 = good; ICR > 4 = very safe
- โข Banks typically require ICR > 2.0 for business loans
- โข S&P 500 average 8-12x; Apple exceeds 25x
๐ ICR vs DSCR
ICR measures interest-only coverage. DSCR (Debt Service Coverage Ratio) includes principal payments. DSCR is stricter and used for project finance and real estate.
| Metric | Numerator | Denominator | Use Case |
|---|---|---|---|
| ICR | EBIT | Interest Expense | Corporate debt health |
| DSCR | Net Operating Income | Debt Service (P&I) | Real estate, project finance |
๐ Interest Coverage Ratio Industry Benchmarks
๐ฆ How Lenders Use ICR
Lenders use ICR to assess default risk. ICR below 1.5 may trigger covenant breaches or loan denial. Banks typically require ICR > 2.0 for new loans. Declining ICR signals deteriorating financial health.
- ICR < 1.5: High default risk โ may deny or price higher
- ICR 1.5-2.5: Moderate risk โ may require covenants
- ICR > 2.5: Acceptable โ standard loan terms
- ICR > 4: Strong โ favorable rates and terms
โ What Is a Good Interest Coverage Ratio?
ICR above 2.5 is generally good; above 4 is very safe. Below 1.5 signals potential default risk. Industry matters: utilities often have 2-4x; tech companies 10x+. Compare to peers and historical trends.
๐ Interest Coverage Ratio Formula
ICR = EBIT / Interest Expense. EBIT is Earnings Before Interest and Taxes (operating income). A ratio of 5 means the company earns 5x its interest payments โ strong coverage.
๐ฏ Expert Tips
Compare to Industry
Utilities have lower ICR (2-4) than tech (10+). Always benchmark against peers.
Watch the Trend
Declining ICR even if still above 2.5 may signal deteriorating financial health.
โ Frequently Asked Questions
What is interest coverage ratio?
The Interest Coverage Ratio (ICR) shows how many times a company can pay its interest expense with operating income. ICR = EBIT / Interest Expense. It measures a company's ability to meet interest obligations on debt.
What is the interest coverage ratio formula?
ICR = EBIT / Interest Expense. EBIT is Earnings Before Interest and Taxes (operating income). A ratio of 5 means the company earns 5x its interest payments โ strong coverage.
What is a good interest coverage ratio?
ICR above 2.5 is generally good; above 4 is very safe. Below 1.5 signals potential default risk. Banks typically require ICR > 2.0 for business loans. S&P 500 companies average 8-12x.
ICR vs DSCR โ what is the difference?
ICR measures ability to pay interest only (EBIT / Interest). DSCR (Debt Service Coverage Ratio) measures ability to pay both principal and interest. DSCR is stricter and used for project finance and real estate.
What are interest coverage ratio industry benchmarks?
Utilities and capital-intensive industries typically have ICR of 2-4. Technology companies often exceed 10x. S&P 500 average is 8-12x. Apple's ICR exceeds 25x. During 2020 pandemic, 30% of US companies had ICR below 3.0.
How do lenders use ICR?
Lenders use ICR to assess default risk. ICR below 1.5 may trigger covenant breaches or loan denial. Banks typically require ICR > 2.0 for new loans. Declining ICR signals deteriorating financial health.
Disclaimer: This calculator provides estimates. Actual lending decisions depend on many factors. Consult a financial professional for specific advice.
Related Calculators
Times Interest Earned Ratio Calculator
Calculate a company's ability to meet its debt obligations based on current income
FinanceDebt to Asset Ratio Calculator
Calculate and analyze your company's debt to asset ratio with industry benchmarks and detailed breakdowns. Visualize debt composition and assess financial risk.
FinanceCash Ratio Calculator
Calculate and analyze your company's cash ratio with advanced industry benchmarking, trend analysis, and actionable recommendations for optimal liquidity management.
FinanceCurrent Ratio Calculator
Analyze your company's liquidity with advanced current ratio analysis, industry benchmarking, and trend insights. Calculate current ratio, quick ratio, and working capital with comprehensive industry benchmarks.
FinanceDebt to Capital Ratio Calculator
Calculate a company's debt to capital ratio to analyze leverage and compare with industry benchmarks for better financial decision-making.
FinanceDays Inventory Outstanding (DIO) Calculator
Calculate Days Inventory Outstanding (DIO) to measure inventory efficiency and optimize working capital management. Features industry benchmarks, cash...
Finance