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.
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Things to Remember
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- 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.
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