What is Interest Coverage Ratio?
EBIT / Interest Expense. Measures how easily a company can pay interest on outstanding debt.
How it Works
Divide Operating Income (EBIT) by Interest Expense.
Step-by-Step Guide
- 1 EBIT
- Earnings before int/tax.
- 2 Interest
- Expense.
- 3 Ratio
- Times earned.
Example
Input: 100k, 20k
Result: 5.0x
FAQ
Ideal?
> 3.0 is stable.
Conclusion
Ratio < 1.5 suggests high risk of default.