Calculate interest coverage ratio (ICR), EBITDA coverage, fixed charge coverage, and implied credit rating. Includes EBIT sensitivity analysis.
The Interest Coverage Ratio (ICR) measures a company's ability to pay interest on its outstanding debt. Calculated as EBIT divided by interest expense, it indicates how many times over a company can cover its interest obligations from operating earnings. An ICR below 1.0x means the company cannot cover interest from operations.
Credit rating agencies, lenders, and investors use ICR as a primary indicator of financial health and debt capacity. Investment-grade companies typically maintain ICR above 3.0x, while highly rated firms (AAA/AA) often exceed 6.5x. A declining ICR signals increasing financial risk and potential difficulty meeting debt obligations.
This calculator computes three coverage metrics — EBIT-based ICR, EBITDA coverage (adding back depreciation), and fixed charge coverage (including lease payments). It maps your ratio to implied credit ratings, shows how EBIT changes would affect your coverage, and calculates maximum interest capacity at various target coverage levels. Essential for CFOs, lenders, and equity analysts evaluating leverage decisions.
ICR is one of the most critical financial ratios for debt analysis, yet manual calculation across multiple scenarios is tedious. This calculator instantly shows your coverage position, maps it to credit rating benchmarks, and stress-tests it against EBIT declines — answering the key question: how much can earnings drop before debt becomes problematic?
ICR = EBIT / Interest Expense. EBITDA Coverage = (EBIT + D&A) / Interest. Fixed Charge Coverage = EBITDA / (Interest + Leases). Safety Margin = (ICR − 1) × 100%.
Result: ICR: 5.0x — EBITDA Coverage: 5.67x — Implied Rating: A — Safety: 400%
With $3M EBIT and $600K interest, the ICR is 5.0x — the company could cover its interest 5 times over. This implies an A credit rating. Adding $400K depreciation gives EBITDA coverage of 5.67x. EBIT could decline 80% before the company fails to cover interest.
Interest coverage answers a narrow but important question: how many times can current operating earnings cover the current interest bill? That makes it a useful first-pass solvency check because it focuses on the mandatory debt cost that has to be paid before equity holders see any residual value.
EBIT coverage is the traditional definition, but it can understate available cash when depreciation is large. EBITDA coverage shows a looser cash-generation view, while fixed-charge coverage goes the other direction by adding lease-like obligations that also reduce financial flexibility. Looking at all three together is more useful than treating one ratio as the whole answer.
A comfortable current ratio can deteriorate quickly if earnings fall or floating-rate debt resets higher. The sensitivity table is most valuable when it is used before the covenant test becomes tight. If a modest EBIT decline drops the ratio below the company's financing threshold, the capital structure is more fragile than the headline number suggests.
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This page calculates interest coverage from EBIT divided by annual interest expense, then adds EBITDA coverage and fixed-charge coverage by adding back depreciation and including lease-style fixed obligations. It also uses the entered earnings base to show how much headroom remains before coverage falls toward commonly watched threshold levels.
The page is a screening worksheet rather than a debt-covenant calculator. Real credit agreements can define EBITDA, fixed charges, and permitted add-backs differently, so the result should be compared against the company's own loan documents and SEC filings rather than treated as a covenant certification.
Generally, ICR above 3.0x is considered healthy for investment-grade companies. Ratios of 5.0x+ indicate strong coverage. Below 2.0x suggests elevated risk, and below 1.0x means the company cannot cover interest from operating income — a severe warning sign.
ICR = EBIT / Interest (only measures interest coverage). DSCR = Net Operating Income / Total Debt Service (includes both interest and principal repayment). DSCR is stricter because it includes principal payments, making it more relevant for assessing total debt repayment ability.
EBITDA adds back depreciation and amortization (non-cash charges), giving a better approximation of cash flow available to service debt. This is especially important for asset-heavy industries (manufacturing, real estate) where D&A is substantial.
Covenant breach triggers a technical default, allowing the lender to demand immediate repayment, increase the interest rate, require additional collateral, or restrict dividends and capital expenditures. In practice, lenders often negotiate a waiver or amendment versus calling the loan.
Rating agencies (S&P, Moody's, Fitch) use ICR as one of several inputs. Typical thresholds: AAA 8.5x+, AA 6.5x+, A 4.5x+, BBB 3.0x+, BB 2.0x+, B 1.5x+. Below 1.0x generally corresponds to D (default) territory. The actual cutoffs vary by industry.
Yes. Low ICR increases default risk and may lead to credit downgrades, higher borrowing costs, or dilutive equity raises. As an equity investor, compare ICR to industry peers and watch for declining trends. Companies with ICR below 2.0x in stable industries may face debt distress.