Investopedia

Continue to Site »

Interest Coverage Ratio

Filed Under » , , ,
Dictionary Says

Definition of 'Interest Coverage Ratio'

A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage 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:

Interest Coverage Ratio
Investopedia Says

Investopedia explains 'Interest Coverage Ratio'

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.

Things to Remember
  • A ratio under 1 means that the company is having problems generating enough cash flow to pay its interest expenses.
  • Ideally you want the ratio to be over 1.5.


Articles Of Interest

  1.

    Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.

  2. Liquidity Vs. Solvency

    Learn about the differences between these two words and how each one is used in the stock market.

  3. Calculating The Means

    Learn more about the different ways you can calculate your portfolio's average return.

  4. R-Squared

    Learn more about this statistical measurement used to represent movement between a security and its benchmark.

  5. Mitigating Downside With The Sortino Ratio

    Differentiate between good and bad volatility with the Sortino Ratio.

  6. Analyze Cash Flow The Easy Way

    Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors.

  7. Quantitative Analysis Of Hedge Funds

    Hedge fund analysis requires more than just the metrics used to analyze mutual funds.

  8. Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.

  9. Rule Of 72

    Learn more about this quick approximation that can determine roughly the number of years it'll take your money to double.

  10. How To Use Facebook As A Marketing Tool

    Facebook can be a viable marketing platform for your business. It can even earn you revenue.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  2. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  3. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  4. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  5. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  6. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.
Trading Center
Array ( )
taggroups(for debug only):
Array ( [0] => Fundamental Analysis [1] => Stocks [2] => Fundamentals [3] => SEG (Investors) [4] => SEG (Investors:Instrument-Stocks) [5] => Economy And Economics [6] => Economics ) time:43ms