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What is the Interest Coverage Ratio?

Also known as the debt service ratio, The interest coverage ratio is a measure of how many times a company can pay the interest owed on its debt with EBIT.

To calculate it, you simply divide EBIT (earnings before interest and taxes) by interest expense. A company with a low interest coverage ratio means it has fewer earnings available to make interest payments, which can imply solvency issues and could mean a company would be at risk if interest rates go up.

Keywords: interest rates, debt, loan interest rates, earnings, solvency issues, interest coverage ratio, debt service ratio, EBIT,