Interest coverage ratio

Interest coverage ratio,

Definition of Interest coverage ratio:

  1. Multiple that indicates the number of times a firms income in an accounting period can pay off (cover) the interest incurred during the same period on firms debts. Since it measures the ability to pay interest-due from the earnings of the firm, this ratio is used in computing the firms borrowing capacity and in assessing the risk of additional debt. Formula: Earnings before interest and tax ÷ Interest expense.

Meaning of Interest coverage ratio & Interest coverage ratio Definition