Interest Coverage = Earnings Before Interest and Taxes (EBIT) / Interest & Related Expenses
- This ratio shows the company’s ability to repay the interest on foreign capital from its profits.
- A high value of the ratio indicates that the company manages to comfortably pay the interest it owes and therefore the risk is very low for lenders.
- On the contrary, a low value is a sign of high debt for an economic unit and therefore a greater risk of possible failure.
Business actions to improve the ratio
- Increase in Results, through Increasing Turnover, Reducing Cost of Goods Sold, Reducing Expenses
- Reduce Total Loans through repayment and reduce Cash, either through Restructuring Debt in favor of Long-Term or Low-Interest
