Financial Ratio Calculator
Interest Coverage Ratio Calculator
Calculate your interest coverage ratio (ICR) from EBIT and annual interest expense. Understand how lenders interpret the result when assessing your business.
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How is the interest coverage ratio calculated?
The interest coverage ratio divides earnings before interest and tax (EBIT) by the annual interest expense. It shows how many times the business can pay its interest charges from earnings.
ICR = EBIT — Annual Interest Expense
For example, if EBIT is £180,000 and annual interest expense is £45,000, the ICR is 4.0x — meaning the business earns four times its interest obligation.
Unlike DSCR, the interest coverage ratio does not consider principal repayments. It focuses purely on the ability to service interest costs from operating earnings.
How lenders interpret ICR
| ICR Range | Interpretation |
|---|---|
| Below 1.0x | Business cannot cover interest from earnings. Very high risk. |
| 1.0x — 1.49x | Low headroom. Vulnerable to profit declines or rate increases. |
| 1.5x — 2.99x | Adequate. Sufficient coverage for most lenders. |
| 3.0x and above | Strong. Comfortable level of interest coverage. |
Assumptions and caveats
- •EBIT should represent earnings before interest and tax. It is not the same as net profit.
- •Interest expense should include all interest on outstanding debt: loans, overdrafts, and finance leases.
- •ICR does not account for principal repayments. Use the DSCR calculator for a more complete affordability view.
- •This is a historic or current ratio. Lenders may also assess projected ICR on forecast figures.
Frequently asked questions
The interest coverage ratio (ICR) measures how many times a business can pay its interest expense from its earnings before interest and tax (EBIT). It is a key metric lenders use to assess whether a borrower can comfortably meet interest payments.
An ICR of 3x or above is generally considered healthy, meaning the business earns three times its interest expense. An ICR below 1.5x is concerning for most lenders, and below 1.0x means the business cannot cover its interest from operating earnings.
ICR measures ability to cover interest payments only, while DSCR measures ability to cover total debt service including both principal and interest repayments. DSCR provides a more complete picture of debt affordability.
Want to improve your interest coverage?
The Spark team can help restructure debt or find lower-cost facilities to improve your interest coverage position.
Contact the Spark Team