Financial StatementsIntermediate

Interest Coverage Ratio

How many times operating profit covers interest payments.

Detailed explanation

Lenders and rating agencies use it to judge whether a company can service its debt.

Formula

Interest coverage = EBIT ÷ Interest expense

Example

EBIT ₹80 cr ÷ interest ₹10 cr = 8×.

Why it matters

Low coverage is an early warning of debt stress.

Key points

  • Below about 1.5× is generally seen as weak.
  • Common in loan covenants.
  • Use EBITDA for a looser version.

Related terms

EBITDebt-to-Equity Ratio

More in Financial Statements

Income StatementRevenueCost of Goods SoldGross MarginEBITDAEBIT

Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.