Lenders often assess a firm’s ability to meet its interest obligations by computing interest coverage ratio. A higher ratio means that the company can easily meet its interest obligations from the operating income or earnings. If the ratio is below 1, that suggests the company is not generating enough income from its operations to meet its interest expenses and could potentially face difficulties in servicing its debt.Each industry has its own benchmark for what is considered a "good" interest coverage ratio, but in general, a ratio of 1.5 or higher is often considered satisfactory.
Learn Interest Coverage Ratio Evaluation with interactive examples and practice exercises in our Performance Metrics module.
This interactive learning module helps you understand Interest Coverage Ratio Evaluation through hands-on practice and real-world examples.