Financial
Interest Coverage Ratio (TIE) and Net Debt / EBITDA covenant formulas
Monitor corporate credit agreements with Times Interest Earned (EBIT / Interest), Net Leverage ((TotalDebt - Cash) / EBITDA), and automated covenant flags.
Test maintenance credit covenants: Minimum Interest Coverage & Maximum Net Leverage
This illustrative model tests EBIT/interest >=3 and net debt/EBITDA <=3.5. These thresholds, reporting periods and definitions are assumptions, not universal loan terms.
A real agreement may use adjusted EBITDA, restricted cash exclusions, cash-netting caps, different interest measures and cure provisions. Use the signed definitions before interpreting a flag as contractual compliance.
Use consistent monetary units and reporting periods, positive EBITDA and positive interest expense. Compare unrounded ratios to thresholds; round only their display.
| Credit Covenant Metric ($500m EBITDA, $100m D&A, $80m Int) | Formula | Result |
|---|---|---|
| Times Interest Earned (EBIT / Int) | =(500 - 100) / 80 | 5.00x (>= 3.0x Floor) |
| EBITDA Coverage | =500 / 80 | 6.25x |
| Net Debt ($1,600m Debt - $200m Cash) | =1600 - 200 | $1,400m |
| Net Leverage Ratio (NetDebt / EBITDA) | =1400 / 500 | 2.80x (<= 3.5x Cap -> Passes example thresholds!) |
Net Debt / EBITDA, Interest Coverage, and Covenant Gate formulas
Subtract Unrestricted Cash (E2) from Total Debt (D2) before dividing by LTM EBITDA (A2).
=IF(OR(A2<=0,C2<=0),"Check EBITDA and interest",ROUND((D2 - E2) / A2, 2))Automated dual-covenant compliance flag (TIE >= 3.0x AND NetLev <= 3.5x)
Flags "Outside example thresholds" immediately if either ratio crosses its threshold.
=IF(OR(A2<=0,C2<=0),"Check EBITDA and interest",IF(AND(((A2 - B2) / C2) >= 3, ((D2 - E2) / A2) <= 3.5), "Passes example thresholds", "Outside example thresholds"))Try the example
Use the original values or change them to test your understanding.