Interest Coverage Ratio
Calculate the interest coverage ratio, a solvency ratio that measures a company’s ability to pay its interest expenses on outstanding debt.
The interest coverage ratio evaluates a company’s ability to meet its interest obligations from its operating income. A higher ratio indicates a company’s stronger ability to cover its interest payments using its earnings, implying lower financial risk. Conversely, a lower ratio suggests a company may have difficulty meeting its interest obligations and could be at higher risk of default.
The formula is as follows:
\[\text{Interest Coverage Ratio} = (\text{Operating Income} + \text{Depreciation and Amortization}) / \text{Interest Expense}\]Also known as: TIE, times interest earned.
Interest Coverage Ratio in Python
get_interest_coverage_ratio is part of the Ratios module of the open-source Finance Toolkit. Install it with:
pip install financetoolkit -U
Then call get_interest_coverage_ratio as shown below.
from financetoolkit import Toolkit
toolkit = Toolkit(["AAPL", "TSLA"], api_key="FINANCIAL_MODELING_PREP_KEY")
interest_coverage_ratios = toolkit.ratios.get_interest_coverage_ratio()
Which returns:
| 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|
| AAPL | 45.4567 | 44.538 | 31.9908 | - | - |
| TSLA | 25.4286 | 90.0471 | 86.9103 | 35.5543 | 31.074 |
Parameters
get_interest_coverage_ratio accepts the following parameters:
- rounding (int, optional): The number of decimals to round the results to. Defaults to 4.
- growth (bool, optional): Whether to calculate the growth of the ratios. Defaults to False.
- lag (int | str, optional): The lag to use for the growth calculation. Defaults to 1.
- standardize (bool, optional): Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False.
- trailing (int): Defines whether to select a trailing period. E.g. when selecting 4 with quarterly data, the TTM is calculated.