Metric
Interest Coverage
How easily operating profit covers interest payments.
Formula
Operating Income ÷ Interest Expense
Definition
Interest coverage shows how many times a company can pay its interest bill from operating earnings.
Why it matters
A cushion here means the business can weather a downturn without defaulting on debt. Thin coverage is fragile and punishes any earnings dip.
Building blocks
- Operating Income
- Profit from core operations, before interest and taxes.
- Interest Expense
- The cost of servicing debt in a given period.
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