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How to calculate Interest coverage ratio

The Interest coverage ratio formula, with plain worked examples you can check yourself.

Interest coverage ratio = EBIT ÷ I

The result is a number in ×.

Worked examples

EBIT = 800 · I = 400Interest coverage ratio = 2×
EBIT = 1000 · I = 500Interest coverage ratio = 2×
EBIT = 3000 · I = 500Interest coverage ratio = 6×

How to use it

  1. Write down the values for each letter in the formula.
  2. Do the brackets first, then divide or multiply.
  3. Check the units before you compare results.
  4. Compare the answer with last period or with a competitor to see if it is good or bad.

This formula belongs to Cash & Liquidity.

Related terms

Cash flowLiquidityWorking capitalOverdraft

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