Interest Coverage
EBITDA (or EBIT) divided by interest expense. EBITDA/Interest is the standard measure; EBIT/Interest is stricter (deducts D&A). Above 4x is comfortable, below 1.5x signals distress.
Why it matters
Tells you how many times over the company can pay its interest bill from operating profits. Banks and rating agencies watch this metric closely. A company that cannot cover its interest is on the path to default.
How to read it
EBITDA/Interest above 4x is comfortable, above 8x is very strong. EBIT/Interest is always lower (since EBIT < EBITDA) and gives a more conservative view. Below 1.5x on either metric signals serious distress. Compare both to see how dependent coverage is on D&A add-backs.
Lessons that use this term
Related terms
10Y Treasury · Altman Z-Score · Asset Sensitivity · Basel III · Bond ETF · Bretton Woods
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