Interest Coverage Ratio
Definition
A measure of a company's ability to make interest payments on its debt, calculated as EBIT divided by interest expense.
Explanation
Interest coverage measures how many times a company can pay its interest obligations from operating earnings. A ratio of 5x means the company earns 5 times its interest payments. Below 3x is concerning. Below 1.5x is dangerous — the company is barely covering its interest. Below 1.0x means the company cannot cover interest from operations and must borrow, sell assets, or default. Credit rating agencies use interest coverage as a key metric in their credit assessments.
Formula
Interest Coverage = EBIT / Interest Expense
How Stoquity Uses This
Stoquity incorporates interest coverage ratio analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.
See This in Action
Explore how interest coverage ratio applies to real portfolios on Stoquity.
Start Free →