Interest Coverage Ratio

The Interest Coverage Ratio measures how many times a company can pay its annual interest expense from its operating earnings before interest and taxes (EBIT). It is calculated as: Interest Coverage Ratio = EBIT ÷ Interest Expense. A higher ratio indicates a greater buffer between earnings and interest obligations — a ratio of 3x or above is generally considered comfortable for most industries. A ratio below 1.5x raises concerns about a company's ability to service its debt in a downturn. In India, the Interest Coverage Ratio is a key metric used by credit rating agencies like CRISIL and ICRA when assigning debt ratings, and by equity investors when assessing financial risk — particularly in capital-intensive sectors like infrastructure, real estate, and metals.