Interest Coverage Ratio

RECENT NEWS
The Economic Times Jun 22
Interest coverage ratio is a gauge that measures the ease with which a company can pay back the interest due on its debt.
The Hindu Business Line Apr 6
Companies with higher levels of outstanding debt (₹2,500 crore and above) have witnessed sharper decline in the interest coverage ratio (ICR) in the f
The Economic Times May 23
The Reserve Bank of India recently asked banks to review various financial parameters of their borrowers.
The Economic Times Apr 21
Already, 22% of India's corporate debt has an interest coverage ratio of less than one.
The Economic Times Sep 27
An interest coverage ratio of below 1 means the company is not generating enough revenue to service its interest costs and may need to draw from its cash reserves.
SeekingAlpha Sep 13
The Hindu Business Line Jul 3
The bloated credit profiles of corporates make their balance sheets vulnerable due to challenges from infrastructure, commodity meltdown and low consumption demand, leaving their interest coverage ab...
The Economic Times Jun 28
2016 has been a year of bad debts with the spectre of debt rejig and default capturing the collective imagination. Will the quarter give first hint of change?
Commodity Online May 29
For ascertaining the credit quality trends of Indian corporates, Ind-Ra has focused on FFO based measures of interest coverage. For FY13, only 75% of corporates (account for 68% of outstanding debt in FY12) had FFO interest coverage above 2.0x....
Penny Stock DD Dec 10
The following is a list of stocks with a high short float, meaning that a significant portion of the company's shares have been shorted. All of the stocks mentioned in this list have short floats higher than 20%. Despite the apparent...




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A company's Interest Coverage Ratio is calculated as EBIT divided by Interest payments.

The interest coverage ratio is a measure of a company's ability to meet its interest payments. A higher ratio indicates a better financial health as it means that the company is more capable to meeting its interest obligations from operating earnings.

A ratio less than 1 would indicate that a company has crippling debt obligations as it uses its entire earnings to pay interest, leaving no income for the common shareholders or to repay back the debt. In such extreme cases, the company would have to sell off its assets, or raise more equity in order to repay some of the debt -- so that it can reduce its interest expense and, in turn, improve the interest coverage ratio.


Example

  • Company A generates $200,000 in earnings before interest and taxes in 2007, and has an interest expense of $100,000 during the same period. This would mean that the interest coverage ratio is 2.
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