What is Interest Coverage Ratio?
The Interest Coverage Ratio, also known as the times interest earned (TIE) ratio, is a solvency ratio that measures a company's ability to cover its interest expenses with its earnings before interest and taxes (EBIT). In other words, it indicates how many times a company can pay its interest charges on outstanding debt using its operating income.
A higher Interest Coverage Ratio indicates that a company is more capable of servicing its debt obligations, as it signifies that the company generates sufficient operating income to cover its interest expenses comfortably. Conversely, a lower ratio suggests that the company may have difficulty meeting its interest payments and could be at risk of defaulting on its debt.
How to Calculate Interest Coverage Ratio?
Interest Coverage Ratio calculator uses Interest Coverage Ratio = Earnings Before Interest and Taxes/Interest Expense to calculate the Interest Coverage Ratio, The Interest Coverage Ratio formula is defined as a solvency ratio that measures a company's ability to cover its interest expenses with its earnings before interest and taxes (EBIT). Interest Coverage Ratio is denoted by ICR symbol.
How to calculate Interest Coverage Ratio using this online calculator? To use this online calculator for Interest Coverage Ratio, enter Earnings Before Interest and Taxes (EBIT) & Interest Expense (Int) and hit the calculate button. Here is how the Interest Coverage Ratio calculation can be explained with given input values -> 4500 = 450000/100.