interest coverage ratio definition

interest coverage ratio

Multiple that indicates the number of times a firm's income in an accounting period can pay off (cover) the interest incurred during the same period on firm's debts. Since it measures the ability to pay interest-due from the earnings of the firm, this ratio is used in computing the firm's borrowing capacity and in assessing the risk of additional debt. Formula: Earnings before interest and tax ÃÂ· Interest expense.

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