🛡️ Coverage Ratios Calculator
Enter earnings and debt obligations to get the interest coverage, DSCR and fixed-charge coverage ratios — each interpreted against lender benchmarks.
Operating earnings cover the interest bill 5× over — a comfortable cushion to service debt.
Operating income covers total debt payments 1.5× over — at or above the ~1.25× lenders typically want to see.
Coverage ratios show how comfortably earnings cover debt obligations — the ratios lenders lean on most. The rules of thumb here (interest coverage above ~2.5–3×, DSCR at or above 1.25×) are widely used loan-underwriting benchmarks, though stable-cash-flow sectors get more leeway. Educational information, not financial advice. 🔒 In your browser.
How the coverage ratios calculator works
Coverage ratios test how comfortably a company's earnings cover its debt obligations. The tool computes interest coverage (times interest earned = EBIT ÷ interest), the debt service coverage ratio (net operating income ÷ total debt service, principal plus interest) and, if you enter lease/rent, the fixed-charge coverage ratio — and reads each against the benchmarks lenders use.
These are the ratios banks lean on when they lend, so their thresholds are among the most consistently cited: interest coverage above roughly 2.5–3× is generally safe (below 1.5× is risky), and lenders typically require a DSCR of at least 1.25×. Stable-cash-flow sectors like utilities get some leeway. Educational information, not financial advice.
Frequently asked questions
What is a good interest coverage ratio?
Above about 2.5 to 3 times is generally considered safe — operating earnings comfortably cover the interest bill. Below 1.5× is a distress signal, and below 1× means earnings don't even cover interest. Stable-cash-flow firms can run a bit lower.
What is the debt service coverage ratio (DSCR)?
Net operating income ÷ total debt service (principal + interest). It shows whether operations generate enough to cover all debt payments. Lenders typically require at least 1.25×; below 1 means the company can't cover its debt from operations.
What DSCR do lenders require?
Commonly 1.25× or higher — a 25% income cushion over debt payments — though riskier property types (hotels, some retail) may need 1.40–1.50×. A DSCR under 1 usually fails underwriting because income falls short of the payments.
What is the fixed-charge coverage ratio?
A broader version of interest coverage that also includes fixed obligations like lease and rent payments. Lenders often set a covenant floor around 1.2–1.25×. It gives a fuller picture for companies with big lease commitments.
Why do lenders focus on coverage ratios?
Because they directly answer the question a lender cares about most: can this business generate enough earnings to keep paying its debt? Leverage ratios show how much debt there is; coverage ratios show whether it's affordable. Educational information, not advice.
Educational information, not financial advice. These calculators use standard formulas with the figures you enter; results are illustrations, not guarantees. For decisions about your money, consult a qualified, regulated financial professional.