Debt-service capacity check.

Interest coverage ratio divides EBIT by interest expense. A 3.0 coverage means operating earnings are 3x the interest bill - comfortable cushion. Below 1.5 and the business uses nearly all operating profit to service debt; below 1.0 and it can't even cover interest from operations, usually signalling approaching default.

600k EBIT on 200k interest expense = 3.0x coverage. That's healthy. Interest consumes 33% of operating profit, leaving 67% for taxes, reinvestment, and equity returns. Drop EBIT to 300k or raise debt interest to 250k and coverage falls to 1.2x - most lenders consider that covenant-breaching territory.

Interest coverage is the primary stress-test metric for leveraged businesses. Private-equity-owned companies routinely run at 2.0-3.0 coverage, utilities accept 2.5-4.0, investment-grade corporates target 6.0+. Rising rates can push previously-healthy coverage into distress quickly: a business with 3M debt at 4% (120k interest) needs 5.0 coverage; at 8% (240k interest), coverage halves without any operational change.

Quick example

With ebit of 600,000 and annual interest expense of 200,000, the result is 3.00. Change any figure and watch the output shift — it's often more useful to see the pattern than to memorise the formula.

Which inputs matter most

You enter EBIT and Annual Interest Expense. Not every input has equal weight. Flip one at a time toward extreme values to feel which ones move the needle most for your situation.

What's happening under the hood

Interest coverage = EBIT ÷ interest expense. The formula is listed in full below. If the number looks off, you can retrace the calculation by hand — that's the point of showing the working.

Using this as a check-in

Re-run this every three months. A single reading tells you where you stand; four readings tell you whether things are improving. The trend matters more than any individual snapshot.

What this doesn't capture

The score is a composite of the inputs you provide. Life context — job security, family obligations, health, housing — doesn't appear in the math but shapes the real picture. Use the number as a prompt, not a verdict.