The Financial Covenant Ratio Calculator is a trusted tool for financial professionals, loan officers, and business owners. It calculates key ratios that lenders often require to ensure borrowers can meet financial obligations. By monitoring these ratios, companies avoid breaching loan terms, helping them maintain strong relationships with lenders and investors. This calculator belongs to the Corporate Finance & Credit Analysis Tools category.
Formula of Financial Covenant Ratio Calculator
1. Debt Service Coverage Ratio (DSCR)
Formula:
DSCR = Net Operating Income / Total Debt Service
Where:
- Net Operating Income (NOI) = Revenue − Operating Expenses
- Total Debt Service = Total interest and principal payments due for the period
Purpose:
Checks if a business generates enough income to cover its debt payments.
2. Interest Coverage Ratio
Formula:
Interest Coverage Ratio = EBIT / Interest Expense
Where:
- EBIT = Earnings Before Interest and Taxes
- Interest Expense = Total interest payable for the period
Purpose:
Shows how easily a company can pay interest from its operating income.
3. Leverage Ratio (Debt to EBITDA)
Formula:
Leverage Ratio = Total Debt / EBITDA
Where:
- Total Debt = Short-term debt + Long-term debt
- EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization
Purpose:
Measures the company’s total debt compared to its operating cash flow.
4. Current Ratio
Formula:
Current Ratio = Current Assets / Current Liabilities
Purpose:
Indicates whether a company has enough current assets to cover short-term debts.
5. Quick Ratio (Acid Test Ratio)
Formula:
Quick Ratio = (Current Assets − Inventory) / Current Liabilities
Purpose:
A stricter measure than the current ratio, showing if a company can meet short-term obligations without selling inventory.
Reference Table
| Ratio | Healthy Range | Purpose |
|---|---|---|
| DSCR | > 1.2 | Ability to service debt |
| Interest Coverage | > 3 | Ability to pay interest easily |
| Leverage Ratio | < 3 | Healthy debt levels relative to earnings |
| Current Ratio | 1.5 – 3 | Good short-term liquidity |
| Quick Ratio | 1 – 2 | Strong liquidity without inventory reliance |
Example of Financial Covenant Ratio Calculator
Scenario:
A business wants to check its DSCR and Interest Coverage.
- Net Operating Income (NOI): $200,000
- Total Debt Service: $150,000
- EBIT: $250,000
- Interest Expense: $50,000
Calculations:
- DSCR: 200,000 / 150,000 = 1.33
- Interest Coverage: 250,000 / 50,000 = 5
Interpretation:
The DSCR of 1.33 shows they can pay debts with a small cushion. An Interest Coverage of 5 means they can comfortably cover interest payments.
Most Common FAQs
These ratios protect lenders by ensuring the borrower stays financially healthy enough to repay loans on time.
Breaking a covenant can trigger penalties, higher interest, or loan default. Regularly using this calculator helps avoid surprises.
Yes! Use amounts from any consistent period: monthly, quarterly, or yearly — just be sure all numbers match the same timeframe.