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Finance Dictionary and Glossary of Investment Terms
interest coverage ratio
A calculation of a company's ability to meet its interest payments on outstanding debt. Interest coverage ratio is equal to earnings before interest and taxes for a time period, often one year, divided by interest expenses for the same time period. The lower the interest coverage ratio, the larger the debt burden is on the company. also called interest coverage.
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:
The ratio of earnings before interest and taxes to annual interest expense. This ratio measures a firm's ability to pay interest.