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Earnings Before Income Taxes
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Interest Coverage Ratio =
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Interest Expense
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Explanation of Interest Coverage Ratio:
The Interest Coverage Ratio measures how readily the company can pay its
Interest Expense payments on its debt obligations.
Importance of Interest Coverage Ratio:
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.
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