Interest coverage

Also called: times interest earned

How many times over operating profit can pay the interest on the company's debt.

Formula

Interest coverage = EBIT ÷ Interest expense

Worked example

1. EBIT = $2.0bn
2. Interest expense = $100m
3. $2.0bn ÷ $100m

Result: 20.0×

How to read it

Below 2× is a warning sign; above 8× is very safe.

Worked example uses made-up figures for 'Example plc'

See it with real numbers: Any company page → (free account)