What it is
EBIT divided by interest expense. An interest coverage of 12× means the company's operating profit covers its interest 12 times - even a 90% drop in earnings would still leave enough to pay debtholders.Why it's the most underrated leverage metric
Debt/Equity tells you how leveraged a company is at a static point in time. Interest coverage tells you whether the company can actually afford the debt. A high D/E with high interest coverage is fine. A modest D/E with low interest coverage is fragile.What "good" looks like
- > 15×: fortress - debt is essentially riskless
- 5–15×: comfortable - most healthy businesses
- 3–5×: tight - recession would be uncomfortable
- < 3×: warning - a normal business cycle dip could cause distress
- < 1×: actively losing money on debt service. Acute risk.