Times Interest Earned (Interest Coverage Ratio)

Times interest earned, or interest coverage ratio, is earnings before interest and taxes divided by interest expense. It measures how many times a company's operating profit covers its interest bill. It is the corporate cousin of DSCR and the basis of the UK's buy to let coverage test.

The difference from DSCR is the denominator. Interest coverage divides by interest alone. DSCR divides by full debt service, principal and interest, and in the residential version by taxes, insurance and dues as well. For the same property, interest coverage is always the higher number.

UK regulators require buy to let lenders to test rent against stressed interest at 125% or more, an interest coverage ratio rather than a DSCR. US commercial lenders use DSCR on NOI. US residential DSCR lenders use gross rent over PITIA. All three ask whether income covers the cost of the debt; they differ in what they count as the cost.

Further reading: Times Interest Earned (Interest Coverage Ratio) on Wikipedia.