Interest Coverage Ratio

Leverage & Debt
Updated Apr 2026 • Has calculator

How many times a company's operating profit covers its interest expense.

What is Interest Coverage?

The Interest Coverage Ratio (also called Times Interest Earned) divides EBIT (operating income) by interest expense to show how comfortably a company can service its debt from operating profits. A ratio of 3.0 means the company earns three dollars of operating profit for every dollar of interest due. Higher is safer; a ratio below 1.5 signals potential difficulty meeting interest payments, especially if earnings fall. Lenders and credit analysts use this ratio to assess default risk.

Formula

Interest Coverage = EBIT ÷ Interest Expense

Worked Example

Worked example — Apple Inc. (AAPL)

FY2024

Step 1  EBIT (operating income) FY2024: $123,216M
Step 2  Interest expense FY2024: $3,932M
Step 3  Interest Coverage = $123,216M ÷ $3,932M = 31.34x
Step 4  → Apple's operating profit covers its interest obligations more than 31 times over

Source: Apple 10-K FY2024 (2024-11-01)

Calculate Interest Coverage

Earnings before interest and taxes in millions of USD

Annual interest expense in millions of USD

Interest Coverage Ratio

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Not investment advice.

How to Interpret Interest Coverage

< 1.5
Danger Zone — barely covering interest, high default risk
1.5 – 3
Adequate — covering obligations but limited margin
3 – 10
Healthy — comfortable debt service capacity
> 10
Very Strong — minimal debt risk relative to earnings

📚 Leverage & Liquidity — Complete the path

  1. D/E Ratio
  2. Current Ratio
  3. Quick Ratio
  4. Cash Ratio
  5. Interest Coverage
Sources
  1. CFA Institute — Financial Reporting and Analysis, 6th ed., Ch. 10
  2. Investopedia — Interest Coverage Ratio