What interest coverage tells you
The interest coverage ratio, also called times interest earned, compares two figures from the same income statement. Operating income, often called EBIT (earnings before interest and taxes), is the profit from running the business before interest and income tax are deducted. Interest expense is the interest charged on the business’s borrowings for the same period. Since interest is paid out of operating profit, the ratio shows how much room the business has to meet its interest bill.
A result of 5.00 means operating income was five times interest expense, so operating profit could fall by 80% before it no longer covered the interest. A result below 1.00 means operating income did not cover interest for the period, and a negative result means an operating loss.
Reading a high or low result
What is normal varies by industry and by how stable profits are. A business with steady, predictable earnings can carry a lower ratio more comfortably than one whose profits swing from year to year.
- A higher ratio leaves more room for profits to fall before interest becomes hard to pay. It can also simply mean the business has little debt.
- A lower ratio leaves less room. A dip in profits could mean interest has to be paid from cash reserves or new borrowing rather than from operating profit.
Compare the ratio with the same business over several periods, or with similar businesses, rather than reading one year on its own.
What counts as a good interest coverage ratio
No single figure suits every business, but you can see where a result sits among real companies. In 2025, the median interest coverage ratio of 1,954 companies listed in the US was 1.01. The middle half of them fell between −9.29 and 5.91.
Industry matters more than any rule of thumb. The median was 13.32 in general merchandise and home retail, but −15.56 in pharmaceuticals and biotech.
- All industries 1,954 companies1.01 −9.29 to 5.91
- General merchandise and home retail 16 companies13.32 6.27–26.57
- Education 18 companies5.02 −9.44 to 36.13
- Industrial machinery 72 companies4.82 −2.14 to 12.86
- Mining 24 companies−4.12 −24.15 to 3.57
- Medical devices and supplies 95 companies−5.56 −28.44 to 4.13
- Pharmaceuticals and biotech 226 companies−15.56 −100.65 to −1.74
Measured from US GAAP financial statements filed with the SEC: income statements for each company's financial year closest to calendar 2025. Banks, insurers and brokers are left out: their revenue, costs and borrowing work differently from other businesses. Companies that report no interest expense are left out. These are public companies, so smaller private businesses can look different. Compare with businesses like yours, and with your own earlier periods. See all 34 industries and how the figures are measured.
To see one listed company’s interest coverage ratio for each of its last five years, worked out from its filings, use the company ratio lookup.
What the ratio does not show
- It ignores principal. Loan repayments are not interest expense, so a business can cover its interest several times and still struggle to meet repayments. The debt service coverage ratio includes principal as well as interest.
- Operating income is not cash. It includes non-cash costs such as depreciation, and sales that customers have not yet paid for.
- It looks backward. The interest expense for the period may not reflect higher rates on variable-rate loans or on debt that is refinanced later.
- EBIT and operating income are often treated as the same figure, as this calculator does, but they can differ when a business has income or costs outside its main operations. Use the same basis each period.
Common mistakes
- Using net income instead of operating income. Net income is after interest and tax, so it understates the profit available to pay interest.
- Using net interest (interest expense minus interest income) in one period and gross interest expense in another.
- Taking a high ratio as proof that the debt is affordable without checking the repayment schedule.
- Comparing operating income for part of a year with a full year of interest expense.
Related measures
The debt-to-equity ratio shows how much the business owes relative to its equity, while interest coverage shows whether earnings can carry the interest on it. Some analysts use EBITDA instead of EBIT, which adds back depreciation and amortization and so gives the same or a higher figure; EBIT vs EBITDA explains the difference. The operating profit margin shows how much operating income each unit of revenue produces.