Debt Risk Calculator
Debt Risk Calculator: Stress-Test Any Company's Balance Sheet
Evaluate a company's debt risk using interest coverage, Debt/EBITDA, and a recession stress test. See if the business can survive a 30% earnings decline.
February 15, 2026
Debt is a double-edged sword. In good times, leverage amplifies returns. In bad times, it can destroy a company. The difference between a stock that survives a recession and one that does not often comes down to one thing: can the company service its debt when earnings fall?
This calculator helps you stress-test any company's debt load by examining interest coverage, leverage ratios, and what happens when earnings decline. It is the same analysis credit rating agencies use — simplified for individual investors.
Try It: Debt Risk Calculator
Enter the company's EBIT, interest expense, total debt, depreciation, and an assumed earnings decline percentage. The tool calculates current and stressed interest coverage to show if the company can weather a downturn.
Understanding the Key Ratios
- Interest Coverage = EBIT / Interest Expense. How many times the company can pay its interest bill from operating earnings. Above 4x is comfortable; below 2x is a warning sign.
- Debt / EBITDA. How many years of earnings (before interest, taxes, depreciation) it would take to repay all debt. Below 2x is conservative; above 4x signals heavy leverage.
- Stressed Coverage. The critical question: if earnings fell by 30% (a typical recession hit), could the company still cover interest? Stressed coverage below 1.5x means the company is one bad quarter away from trouble.
When Debt Becomes Dangerous
- Cyclical businesses with high leverage — companies in industries like energy, mining, or retail that face sharp revenue swings are most vulnerable.
- Rising interest rates — companies with variable-rate debt or maturing fixed-rate debt face higher refinancing costs.
- Debt-funded acquisitions — many leveraged buyouts and roll-up strategies fail when the acquired businesses underperform.
- Debt-funded buybacks or dividends — using borrowed money to return capital to shareholders is financially reckless when leverage is already high.
Screen for Low-Debt Companies
- Screen for low debt-to-equity stocks — financially conservative companies with balance sheet strength.
- Or combine with the Quality Preset to find profitable, capital-efficient companies that also run conservative balance sheets.
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