Finance Lab
Debt serviceability
Test how much debt the trading result actually supports.
Interest cover = EBIT ÷ interest. Debt service cover = EBITDA ÷ (interest + principal). Capacity = EBITDA × target leverage.
Step 1 · Enter your figures
Every box starts with an example figure. Replace each one with your own — the result updates as you type. Nothing you type is sent anywhere or stored.
Annual earnings before interest, tax, depreciation and amortisation.
Non-cash charges deducted to reach EBIT.
Interest-bearing debt outstanding.
Average rate on that debt.
Scheduled capital repayments over the next twelve months.
Debt to EBITDA multiple your lender or board will accept.
Step 2 · Read the result
Annual interest
$120,000
- Interest cover
- 4.17×
- Debt service cover
- 1.88×
- Current leverage
- 2.50×
- Debt supported at your target leverage
- $1,800,000Compared with debt drawn, the difference is headroom or excess.
- Headroom against target
- $300,000
- Interest cover4.17×
- Debt service cover1.88×
- Current leverage2.50×
- Debt supported at your target leverage$1,800,000
- Headroom against target$300,000
What this answer rests on (9)
- EBITDA$600,000
You entered this
Annual earnings before interest, tax, depreciation and amortisation.
- Depreciation and amortisation$100,000
You entered this
Non-cash charges deducted to reach EBIT.
- Debt drawn$1,500,000
You entered this
Interest-bearing debt outstanding.
- Interest rate8.0%
You entered this
Average rate on that debt.
- Annual principal repayments$200,000
You entered this
Scheduled capital repayments over the next twelve months.
- Target leverage3.00×
You entered this
Debt to EBITDA multiple your lender or board will accept.
- Interest is calculated on the full balance for a full year at the rate entered.
The calculator applied this
- The target leverage multiple is yours; no lender covenant is assumed or supplied.
The calculator applied this
- Earnings are treated as maintainable and available for debt service.
The calculator applied this
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Save to my workspaceWhat this means for you
Whether the trading result can actually service the borrowings, and how much cushion you have before it cannot.
How to read it
- The cover ratio says how many times the earnings cover the repayments. Lenders usually want comfortable cover, not bare cover.
- The headroom figure is how far earnings could fall before repayments become a problem.
Watch out for
- Forgetting principal repayments and only counting interest.
- Assuming this year's earnings repeat. Test the downside before you sign.
- Ignoring seasonality — annual cover can look fine while a single month fails.
Assumptions behind this result
- Interest is calculated on the full balance for a full year at the rate entered.
- The target leverage multiple is yours; no lender covenant is assumed or supplied.
- Earnings are treated as maintainable and available for debt service.
General information only. This calculator does not take your circumstances into account and is not financial, tax, legal or investment advice. Confirm every rate, threshold and figure with your own adviser before acting.
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Take this further
Members run this calculator on their own recorded figures, save the workings to their workspace, export them to Word or Excel, and read the lessons that teach the thinking behind the result.