Debt and bankruptcy risk · updated October 21, 2026
What is interest coverage and how is it calculated
Interest coverage shows how many times the profit the company makes from operations covers the interest it has to pay on its debt in a year. The higher it is, the more easily the company pays its loans.
Interest coverage formula
- Operating profit
- Profit from operations, before interest and tax.
- Interest expense
- Interest paid on loans and bonds over the last 12 months.
Worked example
A company has operating profit of $900 million and pays $150 million of interest a year.
Profit covers interest 6 times. Even if profit halved, the interest would still be paid without trouble.
How to read interest coverage
When interest rates rise, companies with low coverage are hit first, because refinancing their debt costs more.
When interest coverage can fool you
Profit in a good year: for cyclical companies, coverage can collapse when a weak year comes.
Related terms
Questions about interest coverage
What interest coverage is safe?
Above 3 is considered comfortable, above 8 very safe. Below 1 means the company cannot pay its interest from profit.
These explanations are for information only. They are not a recommendation to buy or sell.
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