Interest Coverage Ratio Calculator — ICR / Times Interest Earned
Enter a company's EBIT (earnings before interest and taxes) and total interest expense to calculate the interest coverage ratio — a key solvency metric that shows how many times the company can cover its interest obligations from operating earnings.
Strong — comfortable coverage
5×
ICRInterest expense
20%
Remaining EBIT
80%
- 1
Interest as % of EBIT
100,000 ÷ 500,000 × 100 = 20 % - 2
EBIT after interest
500,000 − 100,000 = 400,000 - 3
Interest Coverage Ratio
500,000 ÷ 100,000 = 5ICR below 1.5 is considered risky; above 3 indicates strong coverage.
How does this calculator work?
ICR = EBIT ÷ Interest Expense. It tells you how many times operating earnings can cover the interest bill. Below 1 = cannot cover; 1–1.5 = risky; 1.5–3 = adequate; above 3 = strong. Lenders and analysts use it to gauge debt serviceability alongside other solvency ratios.
Formula
How this is calculated
The interest coverage ratio (also called Times Interest Earned, or TIE) answers a simple question: for every one unit of interest the company owes, how many units of operating earnings does it have? An ICR of 3, for instance, means EBIT is three times the annual interest charge, leaving a comfortable cushion even if earnings fall. An ICR below 1 means the company cannot cover interest from operations and must draw on reserves, asset sales, or new financing.
To compute it, divide EBIT — revenue minus operating expenses before interest and taxes — by the total annual interest expense on all outstanding debt. EBIT excludes non-cash charges like depreciation, so some analysts prefer EBITDA (adding back depreciation and amortisation) for a more conservative denominator, especially in capital-intensive industries. This calculator uses EBIT, the more widely reported variant.
As a general guide, an ICR below 1.5 is considered risky by most lenders; many debt covenants require ICR ≥ 2 or 3. The ratio varies widely by industry — utilities with stable revenues can operate at lower ratios than cyclical businesses. Always interpret ICR alongside the debt-to-equity ratio, cash flow from operations, and sector benchmarks.
Frequently asked questions
There is no universal threshold, but as a rule of thumb: ICR below 1 is critical (the company cannot cover interest from operations); 1–1.5 is risky; 1.5–3 is adequate for stable businesses; above 3 indicates strong coverage. Growth-stage companies and capital-intensive sectors (airlines, utilities) regularly operate at lower ratios than, say, software firms.
ICR only accounts for interest payments. The Debt Service Coverage Ratio (DSCR) includes principal repayments as well, making it a stricter measure of whether a company can service the full debt obligation. Lenders often require both metrics when evaluating creditworthiness.
Yes — if EBIT is negative (an operating loss), the ICR is negative. A negative ICR means not only can the company not cover interest, but its operations are losing money. This is a serious distress signal unless the losses are planned (e.g., a pre-revenue start-up investing in growth).
Also known as
TG we-Calculate Editorial Team. (2026). Interest Coverage Ratio Calculator — ICR / Times Interest Earned [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/interest-coverage-ratio-calculator
TG we-Calculate Editorial Team. "Interest Coverage Ratio Calculator — ICR / Times Interest Earned." TG we-Calculate. 2026. https://we-calculate.com/calculator/interest-coverage-ratio-calculator.
TG we-Calculate Editorial Team, "Interest Coverage Ratio Calculator — ICR / Times Interest Earned," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/interest-coverage-ratio-calculator
@misc{wecalculate_interest_coverage_ratio_calculator, title = {Interest Coverage Ratio Calculator — ICR / Times Interest Earned}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/interest-coverage-ratio-calculator}}, year = {2026}, note = {TG we-Calculate} }
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