Quick Definition

The Interest Coverage Ratio (ICR) is a financial metric used to determine how easily a company can pay interest on its outstanding debt with its current earnings.

Formula

Examples

• 1A company with an EBIT of $500,000 and interest expenses of $100,000 has an ICR of 5, indicating strong financial health.
• 2A business struggling with cash flow shows an ICR of 1.2, suggesting potential difficulty in meeting interest obligations.
• 3An increase in a company's ICR over consecutive quarters may signal improving profitability or reduced debt levels.

Tags