what is the ebitda to interest coverage ratio 
the ebitda to interest coverage ratio is a financial ratio that is used to assess a company s financial durability by examining whether it is at least profitable enough to pay off its interest expenses using its pre tax income specifically it looks to see what proportion of earnings before interest taxes depreciation and amortization ebitda can be used for this purpose the ebitda to interest coverage ratio is also known simply as as ebitda coverage the main difference between ebitda coverage and the interest coverage ratio is that the latter uses earnings before interest and taxes ebit rather than the more encompassing ebitda the formula for the ebitda to interest coverage ratio is understanding the ebitda to interest coverage ratiothe ebitda to interest coverage ratio was first widely used by leveraged buyout bankers who would use it as a first screen to determine whether a newly restructured company would be able to service its short term debt obligations a ratio greater than 1 indicates that the company has more than enough interest coverage to pay off its interest expenses while the ratio is a very easy way to assess whether a company can cover its interest related expenses the applications of this ratio are also limited by the relevance of using ebitda earnings before interest tax depreciation and amortization as a proxy for various financial figures for example suppose that a company has an ebitda to interest coverage ratio of 1 25 this may not mean that it would be able to cover its interest payments since the company might need to spend a large portion of its profits on replacing old equipment because ebitda does not account for depreciation related expenses a ratio of 1 25 might not be a definitive indicator of financial durability ebitda to interest coverage ratio calculation and examplethere are two formulas used for the ebitda to interest coverage ratio that differ slightly analysts may differ in opinion on which one is more applicable to use depending on the company being analyzed they are as follows andas an example consider the following a company reports sales revenue of 1 000 000 salary expenses are reported as 250 000 while utilities are reported as 20 000 lease payments are 100 000 the company also reports depreciation of 50 000 and interest expenses of 120 000 to calculate the ebitda to interest coverage ratio first an analyst needs to calculate the ebitda ebitda is calculated by taking the company s ebit earnings before interest and tax and adding back the depreciation and amortization amounts in the above example the company s ebit and ebitda are calculated as next using the formula for ebitda to interest coverage that includes the lease payments term the company s ebitda to interest coverage ratio is 