Interest Coverage Ratio Calculator

This calculator helps corporate finance professionals and analysts determine a company's ability to cover interest expenses with its earnings before interest and taxes (EBIT).

Results

Interest Coverage Ratio: N/A

Data Source and Methodology

All calculations are based on standard financial formulas and methodologies. Ensure accuracy by consulting authoritative financial resources.

The Formula Explained

The Interest Coverage Ratio is calculated as:

\[ \text{ICR} = \frac{\text{EBIT}}{\text{Interest Expense}} \]

Glossary of Terms

EBIT: Earnings Before Interest and Taxes, representing a company's profit.
Interest Expense: The cost incurred by an entity for borrowed funds.
Interest Coverage Ratio: A measure of a company's ability to meet its interest obligations.

Frequently Asked Questions (FAQ)

What is the Interest Coverage Ratio?

The Interest Coverage Ratio measures how easily a company can pay interest on outstanding debt.

Why is the Interest Coverage Ratio important?

It helps investors understand the risk of a company defaulting on its debt obligations.

What is a good Interest Coverage Ratio?

A ratio above 1.5 is generally considered acceptable, indicating that the company is generating enough EBIT to cover its interest expenses.

How is the Interest Coverage Ratio used?

Analysts use it to assess the financial stability of a company before investing or lending money.

Can the Interest Coverage Ratio be negative?

Yes, a negative ratio indicates that the company is unable to cover its interest expenses from its earnings.

Tool developed by Ugo Candido. Content reviewed by financial experts. Last reviewed for accuracy on: October 15, 2023.