# Interest Coverage Ratio

*Accounting & Reporting — Finicade finance glossary*

Interest coverage divides operating income by interest expense, showing how many times over a company can pay its interest bill. Below roughly 1.5 is distress territory, and lenders write it into covenants precisely because it deteriorates before a default rather than after. It's more informative than debt-to-equity because it compares an obligation to the cash flow that services it.

**Formula:** `Interest coverage = EBIT ÷ Interest expense`

**Also known as:** times interest earned, EBIT coverage

**Related terms:** [Operating Income (EBIT)](https://finicade.com/glossary/operating-income), [Debt-to-Equity Ratio](https://finicade.com/glossary/debt-to-equity-ratio), [Credit Rating](https://finicade.com/glossary/credit-rating), [Covenant](https://finicade.com/glossary/covenant), [Leverage](https://finicade.com/glossary/leverage)

Source: https://finicade.com/glossary/interest-coverage-ratio