Interest Coverage Ratio
Corporate Credit Analysis glossary · Credit Metrics & Debt Schedule Modeling
Definition
EBITDA (or EBIT) divided by interest expense; a fundamental measure of an issuer's ability to service interest. Rating-mapping thresholds typically run EBITDA/Int > 8x for IG, 4-8x for high BB/BBB, < 3x in single-B territory.
Interest Coverage Ratio in plain English
This ratio asks a simple survival question: does the company earn enough to comfortably pay the interest on its debt? You take its core operating earnings (EBITDA or EBIT, basically profit before interest, taxes, and some accounting items) and divide by its yearly interest bill, so a result of 8× means it earns eight dollars for every one dollar of interest owed. Like checking whether your paycheck is eight times your monthly loan payment versus barely covering it, higher is much safer. Very safe borrowers sit above 8×, solid-but-riskier ones land around 4–8×, and anything under 3× signals a company that could stumble if earnings dip even a little.
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