Stability

Interest Coverage Ratio

How many times over a company can pay its interest with the operating profit it earned — a metric for the fitness to bear debt.

In plain terms

Say you pay loan interest from your salary. With a salary 5 times the interest you have room, but barely covering it at 1x is tight. Interest coverage is the company version of that ratio.

It shows how many times its interest the operating profit a company earned covers. The larger the number, the more room to pay interest.

What it tells you

It shows what the amount of debt (debt-to-equity) alone cannot — "can it actually bear the interest on that debt." A company usually goes bust not because it has a lot of debt, but because it cannot meet the interest or maturity due right now. So the fitness to withstand this is often more decisive than the amount of debt.

When rates rise or earnings shrink, it is the first metric to tell you whether the company has the room to bear the interest burden.

Formula

interest coverage = operating profit (EBIT) ÷ interest expense
e.g. operating profit 100, interest 20 → 5x (earned 5 times the interest)

What high or low means

A high interest coverage (e.g. 5x or more) is read as ample room to pay interest.

Around 1x means operating profit barely covers the interest, so even a small wobble in earnings can turn dangerous.

Caution

Below 1x means operating profit cannot even fully cover the interest, a danger signal. But it may be due to a temporary cost, so read several quarters in a row.

Operating profit is an accounting number, so it has to be read with the cash flow actually in hand (operating cash flow) to reveal the real ability to pay.

A company with almost no debt has tiny interest expense, so the ratio comes out very large. So more than a single absolute figure, whether the ratio is improving or worsening over time (the trend) matters more.

Metrics to read alongside

Debt-to-Equity (D/E)

If debt-to-equity is "how much debt there is," interest coverage is "can it bear the interest on that debt." Together they let you read the amount of debt and its burden at once.

Net Debt to EBITDA

If net-debt/EBITDA looks at how many years to pay off the debt, interest coverage looks at whether it can bear the interest right now. Together they give a three-dimensional view of debt fitness.

OCF (Operating Cash Flow)

Interest is ultimately paid in cash. Reading it with operating cash flow lets you know whether interest can be paid with real cash, not book profit.

See it in real stocks

Search US stocks on Stocklore to see Interest and other financial metrics alongside the sector average.

AAPL Apple Inc.MSFT Microsoft Corporation NVDA NVIDIA Corporation AMZN Amazon.com, Inc.Search stocks →

Exactly how Stocklore computes this metric (formula, thresholds, SEC source) is on the methodology page.

This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.