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The interest coverage ratio measures how comfortably a company can pay interest on its debt from operating earnings. Interest coverage = EBIT / Interest expense. A ratio below 1.5 is a warning sign.
Stapsgewijze handleiding
- 1Get EBIT (Earnings Before Interest and Taxes) from the income statement
- 2Get total interest expense for the period
- 3Interest coverage = EBIT / Interest expense
Uitgewerkte voorbeelden
Invoer
EBIT £200k · Interest £40k
Resultaat
Coverage ratio = 5.0x
Earns 5 times what it needs to service debt
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