Interest coverage
#11GUIDING QUESTION
How many times do you cover interest with your operating profit?
It measures financial resilience vis-à-vis banks.
01.What it is
It compares EBIT with finance costs. It does not include principal repayments.
02.Component masses
- EBIT
- Finance costs
03.Formula
MAIN FORMULA
Interest coverage: EBIT ÷ Finance costs(times)
04.Interpretation
- < 1.5 → risk
- 2–4 → acceptable
- > 5 → comfortable
05.Related to
- Net debt/EBITDA
- Overall solvency
- Liquidity