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Times Interest Earned Ratio

Times Interest Earned Ratio =


Interest Expense

AKA: interest coverage ratio


Measures the amount of income that can be used to cover interest expenses in the future. This ratio shows how often a company’s earnings can cover the fixed-interest payments on its long-term debt.

Note: expanded calculation

Divide income before interest and income taxes by the interest expense.

EBIT is earnings before interest and taxes and is sometimes called Operating income.


M&M’s income statement shows $500,000 of income before interest expense and income taxes. And an overall interest expense for the year of $50,000.

Times Interest Earned Ratio = $500,000 / $50,000 = 10

M&M’s income is ten times greater than its annual interest expense.


The larger ratios are more favorable than smaller ones because they indicate that the company can afford the interest expense.

Generally, a company with a rate below 2.5 is considered overextended.

Times Interest Earned Ratio:


ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.