Interest coverage ratio

A coverage ratio measured by the firm’s ability to meet its interest obligations.

Based on cash flows

Interest coverage = (CFO + Interest paid + Taxes paid) / Interest paid

* If interest paid was classified as a financing activity under IFRS, no interest adjustment is necessary. 

Based on EBIT or EBITDA

Interest coverage = EBIT / Interest payments

Interest coverage = EBITDA / Interest payments

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