Interest coverage ratio formulae.
This query is : Resolved
11 June 2025
Is it EBITD or EBIT to apply the formulae.
12 August 2025
Interest Coverage Ratio (ICR) Formula
Interest Coverage Ratio
=
EBIT or EBITDA Interest Expense
Interest Coverage Ratio= Interest Expense / EBIT or EBITDA
Which to use — EBIT or EBITDA?
EBIT (Earnings Before Interest and Taxes) is the more commonly used figure for Interest Coverage Ratio.
This is because EBIT represents operating profit before interest and taxes but after depreciation and amortization, reflecting the actual earnings available to cover interest.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is less conservative as it excludes depreciation and amortization, which are real expenses.
Interest Coverage Ratio
=
EBIT or EBITDA Interest Expense
Interest Coverage Ratio= Interest Expense / EBIT or EBITDA
Which to use — EBIT or EBITDA?
EBIT (Earnings Before Interest and Taxes) is the more commonly used figure for Interest Coverage Ratio.
This is because EBIT represents operating profit before interest and taxes but after depreciation and amortization, reflecting the actual earnings available to cover interest.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is less conservative as it excludes depreciation and amortization, which are real expenses.
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