---
title: "Definition of Interest Coverage"
url: https://signalscreener.fr/definition/interest-coverage/
markdown_url: https://signalscreener.fr/definition/interest-coverage.md
description: "Interest Coverage shows how many times a company can pay interest expenses with its earnings."
type: glossary-definition
site: Signal Screener
language: en
keywords:
  - "Interest Coverage"
  - "Interest Coverage Ratio"
translations:
  es: https://signalscreener.fr/es/definition/interest-coverage.md
  fr: https://signalscreener.fr/fr/definition/interest-coverage.md
  zh: https://signalscreener.fr/zh/definition/interest-coverage.md
---

# Interest Coverage Ratio

## What is Interest Coverage?

Interest Coverage shows how many times a company can pay interest expenses with its earnings. Below 1.5 is dangerous, above 3 is safe.

## Think of it like this

You earn $5,000/month with $500 mortgage interest. Your coverage is 10x - very safe! If earnings drop to $1,000, coverage is 2x - getting risky!

## Formula

```
Interest Coverage = EBIT / Interest Expense
```

- **EBIT**: Earnings Before Interest and Taxes
- **Interest Expense**: Annual interest on debt

## Why it matters

- Shows debt servicing ability
- Critical for survival in downturns
- Banks watch this closely
- Red flag if trending down

## What's a good value?

| Range | Rating | What it means |
|---|---|---|
| < 1.5 | Distressed | Cannot cover interest - danger! |
| 1.5-2.5 | Weak | Just barely covering interest |
| 2.5-5 | Adequate | Comfortable coverage |
| > 5 | Strong | Easily covers debt obligations |
| > 5 | Strong | Very safe from default |

## Real-world example

Apple coverage: 20x - massive cash generation. Utility company: 3x - stable but leveraged. Struggling retailer: 0.8x - may default on debt.

## Things to watch out for

- EBIT can be volatile
- Doesn't include principal payments
- Off-balance sheet obligations excluded
- One bad year can change dramatically

---

This is educational content, not financial advice.

Source: [Definition of Interest Coverage](https://signalscreener.fr/definition/interest-coverage/) on Signal Screener. Free to quote and cite with attribution and a link to that URL, which is the canonical one.

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