Interest Coverage Ratio
A ratio used to determine how easily a company can pay interest on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:
Investopedia Commentary
The lower the ratio the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.
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See also: Compounding, Creditor, EBIT, Fixed Interest Rate, Interest Rate, Loan