bank-portal.rubank-portal.ruFinancial knowledgeSearch articles and terms...Start learning
Financial term
Glossary A–Z

Interest coverage ratio

The interest coverage ratio shows how many times a selected profit measure exceeds interest expense. A common version divides EBIT by interest for the same period. Calculations based on EBITDA or cash measures also occur, however, so the ratio’s name without its formula does not ensure comparability.

Formula and example

If illustrative EBIT is 120 thousand roubles and interest expense is 30 thousand roubles, coverage is 4. This does not mean that the company can immediately repay all debt: the denominator contains interest, not the loan amount. In addition, profit may be recognized before cash is received.

Limits of interpretation

There is no universal safe threshold for every business. An investor considers profit stability, floating rates, maturities and covenant restrictions. With negative profit, the ratio requires separate commentary. A one-off gain can temporarily improve the calculation, so it is useful to check the quality of the numerator and actual cash payments. Related reading: [income statement](/guides/income-statement/), [profit versus cash](/guides/profit-vs-cash/) and [EBIT](/glossary/ebit/).

Continue in this batch

General financial concepts; not an individual recommendation under Russian jurisdiction.

Source references retained: term-cbr-ratios and term-ifrs-essentials; EBIT, EBITDA, cash measures, 120 thousand roubles, 30 thousand roubles, ratio of 4, debt-versus-interest, accrual timing, floating rates, maturities, covenants and one-off-gain caveats preserved.

Educational material is not individual investment, legal or tax advice.