A ratio used to determine how easily a company can pay interest on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:
Investopedia Says:
The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.
Related Links:
This ratio represents an important factor of shareholders' returns - find out how to analyze it! Looking At Interest Coverage
Read up on some ratios that test whether a company is strong enough to survive tough times. Do Your Investments Have Short-Term Health?
Make an informed decision about your investments with these easy equations. Analyze Investments Quickly With Ratios
