Interest Coverage Ratio

Measures how well a company can make payments on its debt.

Similar to the Times Interest Earned ratio, the Interest Coverage Ratio measures how readily the company can pay its Interest Expense payments on its debt obligations.

A high, or increasing Interest Coverage Ratio is usually a positive sign, showing the company is better able to pay its Interest Expense with its earnings. A ratio result of 1.0 is minimal, showing the company is barely able to meet its expense payments. Depending on the industry, a ratio value of 1.5 to 2.0 is desirable.

Tags: Financial Ratio