Interest Coverage Ratio

The Interest Coverage Ratio measures how easily a company can pay interest on its outstanding debt with its current earnings. It is calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expense. This ratio is a key indicator of financial health, showing a company's ability to meet its interest obligations. A higher ratio implies greater ability to cover interest expenses, which is critical for creditors and investors in assessing the risk associated with the debt.