Interest Coverage Ratio

Interest Coverage Ratio - Interest Coverage Ratio is a ratio used to determine the ease a company can pay interest on an outstanding debt. The interest coverage ratio calculated by dividing company's earnings before the interest and the taxes (EBIT) of one period by the company's interest expenses of the same period. The lower ratio, the more the company burdened by debt expense. When a company's interest coverage ratio is 1.5 or in total lower. It is the ability to meet interest expenses and may be questionable. Interest ratio coverage below 1.0 indicates the company is not generating sufficient revenues to satisfy interest expenses.