Name: Interest Coverage

Definition: Interest coverage tells you how easily the company can pay interest on its debt using operating profits. It’s like asking: “Can the company comfortably make its loan payments, or is it barely scraping by?” The higher the ratio, the safer. A very low ratio means debt payments may strain the business, especially if profits drop.

Interpretation:
None

Formula: Interest Coverage = EBIT / Interest Expense

Good Range: Minimum 3-5 desirable; below 1 is risky.