Knowledge base
Glossary · Updated Oct 23, 2026
Interest coverage
How many times over a company’s earnings can pay its interest bill. A quick test of whether debt is serviceable.
Interest coverage shows how comfortably a company’s operating earnings cover the interest it pays on its debt.
Formula
Interest coverage = EBITDA ÷ interest expense
The platform also computes a stricter version that deducts capital expenditure from EBITDA before dividing: (EBITDA − capex) ÷ interest expense. Equipment that has to be replaced each year is a real claim on the same earnings, so the stricter version is often more honest for capital-heavy businesses.
Worked example
Measure | Value (millions) |
|---|---|
EBITDA | 1,000 |
Capital expenditure | 400 |
Interest expense | 125 |
EBITDA ÷ interest | 8.0x |
(EBITDA − capex) ÷ interest | 4.8x |
How to read it
- The higher the figure, the more room there is before earnings stop covering interest.
- A falling ratio is an early warning, even while the company is still profitable.
- Use the same EBITDA definition when you compare companies. Adjusted figures can differ from reported ones.