___A calculation of a company's capability to meet its interest payments on outstanding debt,income before interest expenses and taxes (EBIT) divided by the amount of interest that a company pays on its debt,a ratio used to determine how easily a company can pay interest on outstanding debt.
EBIT
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Interest Expense
The lower the ratio, the more the company is troubled by debt expense. When a company's interest coverage ratio is 1.5 or lower, its capability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generate sufficient revenues to satisfy interest expenses.
The lower the interest coverage ratio , the higher the company's debt burden and the greater the possibility of bankruptcy or default.
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