Interest Coverage Ratio

EBIT / interest expense

It refers to the value obtained by dividing operating income by interest expense. Because it is a ratio that measures the safety of interest expenses owed to creditors, it is used as an indicator to assess a company's ability to pay interest on its debt. Since interest payments reduce corporate tax, it is calculated using EBIT. (See Modigliani-Miller Theorem)

Topics: Zombie Companies
Category: Wiki/Economy